What is a lockbox?

Definition

A lockbox is a bank service that receives customer checks at a post office box and posts them to the company's account. It is not an account on your books, only a way of getting paper payments into the bank without opening the mail at the shop.

The florist still owns the cash once the bank posts it. The service only changes who receives the envelope and how fast the deposit hits.

Where it shows up

Cash flow: Related to customer checks hitting the bank faster.

Balance Sheet: Related to cash rising once the bank posts those checks.

P&L: Related to nothing extra.

See also: Cash Application · Accounts Receivable · Bank Statement

You will not see a lockbox line on the Balance Sheet or the Income Statement. Cash in current assets rises when the bank posts the checks, the same as a deposit you walked to the branch.

Accounts receivable does not fall just because the envelope reached the bank. Someone still has to match each check to an invoice after the deposit lands.

The Income Statement does not move. Revenue was already recorded when the florist billed the cafe.

The bank's period record will show the lockbox deposits as credits to the operating account. Those credits should tie to the checks the bank opened that day.

How it works

The florist tells customers to mail checks to a bank-owned post office box, not to the shop. The bank collects that mail, opens the envelopes, and deposits the checks.

The bank usually sends a file or a report of what it received. That report lists payer names, amounts, and any slips that came in the envelope.

The florist uses the report to see cash that is already in. Matching those amounts to open invoices is cash application, covered on another page.

Speed is the point. Checks do not sit on a desk over the weekend, so cash hits the account sooner than a shop-floor deposit.

The shop also keeps checks out of the back office. Fewer people at the florist handle the cafe's money, which lowers the chance a check is lost or taken.

The bank charges for the service. That fee is an expense when billed, and it is separate from the deposit itself.

A lockbox does not decide which invoice a check pays. If the cafe's envelope has no list of bills, the deposit is still an unapplied payment until the florist asks.

Collections work still belongs to the florist. The bank is opening mail, not calling the cafe about unpaid invoices.

Some banks offer an electronic version that captures check images. The mechanic is the same: the bank takes in the payment.

Example

A florist used to open cafe checks at the shop and walk them to the bank on Fridays. The cafe now mails the same $400 bread checks to a bank post office box.

The bank opens the envelope on Tuesday and posts $400 to the florist's account that day. Cash is in two or three days sooner than the old Friday run.

The florist still has to read whatever remittance advice came with the check and close the right invoices. The lockbox only moved the intake of the paper, not the matching in the books.

If the envelope had been empty of any invoice numbers, the $400 would still hit the bank. The cafe's bills would stay open until the florist asked what the check was for.

Common mix-ups

A lockbox is not your checking account. It is the intake service in front of that account, and the cash still lands in the same bank balance you already use.

A lockbox is not matching payments to invoices. The bank deposits the checks, and the florist still has to decide which bills they cover.

A lockbox is not collections. Collections is follow-up on unpaid invoices, and the lockbox only processes mail that already came in.

A lockbox is not a statement of account. A statement of account is a summary you send the customer, and the lockbox is how the customer's check reaches your bank.

Related terms

• Cash Application: Matching incoming customer payments to the right open invoices.
• Remittance Advice: The note from a customer explaining which invoices a payment covers.
• Accounts Receivable: Money customers owe the business for goods or services already delivered.
• Bank Statement: The bank's period record of every transaction and the ending balance.
• Deposit In Transit: A deposit recorded on the books but not yet showing on the bank statement.
• Collections: The process of following up on unpaid customer invoices.
• Bank Reconciliation: Matching the book cash balance to the bank statement and explaining every difference.
• Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.