Magazine article Business Credit

Boxed in or Busting Out: Will Lockboxes Soon Be Phased out with Technological Advances or Is It Too Ingrained?

Magazine article Business Credit

Boxed in or Busting Out: Will Lockboxes Soon Be Phased out with Technological Advances or Is It Too Ingrained?

Article excerpt


Estimates vary, but it is widely believed that 80% to 90% of all U.S.-based businesses still rely heavily upon the use of lockboxes as the most significant venue for the receipt of payment. And that may be a fairly conservative estimate.

While somewhat low-tech in a world otherwise infatuated with technological advances, many see it as a tried-and-true way of receiving payment. "We receive about 60% of our payments through the lockbox; it's worked fairly well, so there hasn't really been a push to change," said Philip Trop, credit manager at St. John Companies Inc., which deals in hospital equipment and products. However, that's not to say credit professionals see it as particularly efficient or entirely desirable.

When banks collect payments for creditors from their customers at a remittance processing center, there is often a delay of a full day, perhaps longer, for the money to actually show up in an account. That doesn't take into consideration the time it takes for the company in question to receive the hard payment at their offices, usually days later, and to process it into their systems. Nor does it consider the dreaded charge-by-keystroke fees that banks have made untold riches off of by billing businesses for the service. Still, for many, it beats having to employ a large enough staff to process all the information manually. Trop agreed with all of those points noting that, despite perceptions, the traditional way works fine, "We're way away from being efficient."

It's a sentiment shared by many in the industry, but old traditions die hard and major industry sea changes are slow-coming. Still, hope remains that change isn't too far off.

"We're definitely trying to move away from lockboxes ... because of the costs of the banks, because of delays in having money available," said Nora Duffy, global credit manager for Optimum Receivables. "It's inevitable."

Still, professionals with financial services providers like Dean Middleton and Rudet Fountain of United TranzActions, an NACM partner, believe the evolution in technology and/or requests of the customers will steer change sooner than later.

"Within three to five years, you're going to see lockboxes go away significantly, not totally; technology will make them somewhat obsolete," Fountain predicted. "The technology is too great, and it moves so fast. People will see the other solutions out there; they just haven't found a bridge into technology yet. Right now, they still see it as a very big hill to climb, if you will."

Still, those who want to see changes, like Duffy and other credit managers polled by NACM, know they have to contend with an "if it isn't broken, don't fix it" culture when it comes to major credit department collection policies. In addition, upper management is generally far more likely to green-light changes designed to ease technological processes for customers than for internal processing needs.

If It Isn't Broken...

Though many talk of the inefficiencies, for years it was, with little question, the best option for businesses. Said Middleton, UTA's president, use of lockboxes was generally how the business community functioned and was "the best of the worst" as far as options went.

But for some veteran credit professionals, they remain somewhat satisfied with the service because it has been a significant improvement over options previously used. Stan Winarski, CCE, credit manager for Broan-NuTone LLC, told Business Credit that the use of lockboxes, even with paying banks by the keystroke, helped his company save at least 30% over what it was paying for staffing or committing existing resources to do the applications themselves prior to the switch.

"If you have a process that you feel is working, to be honest, there would be a fair amount of inertia in changing to another system that perceivably has some risk in it," said Winarski. …

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