Accounting Best Practices, Fifth Edition

6–3. Collect Receivables through Lockboxes

There are a number of problems associated with receiving all customer payments at a company location. For example, checks can be lost or delayed in the mailroom, given to the wrong accounting person for further processing, or delayed in transit from the company to the bank. It is also necessary for the mailroom staff to log in all received checks, which are later compared to the deposit slip sent out by the accounting staff to ensure that all received checks have been deposited—this is a nonvalue-added step, though it is necessary to provide some control over received checks. All these steps are needed if checks are received and processed directly by a company.

The answer is to have the bank receive the checks instead. To do so, a company’s bank sets up a lockbox, which is essentially a separate mailbox to which deposits are sent by customers. The bank opens all mail arriving at the lockbox, deposits all checks at once, copies them, and forwards the copies and anything else contained in customer remittances to the company. This approach has the advantage of accelerating the flow of cash into a company’s bank account, since the lockbox system typically reduces the mail float customers enjoy by at least a day, while also eliminating all of the transaction-processing time that a company would also need during its internal cash-processing steps. ...