by Oliver Schmid / 4954 IT Consulting, LLC  

Outsourcing your accounts receivable check processing to your financial institution, using a lock-box can be a way on improving one of your critical business transactions in order to increase efficiencies.
By definition a lock-box is like a Post Office Box with your financial institution. Your customers will mail all their checks to the lock-box address and then your financial institution deposits the checks into your account before sending them on to you to be posted into your Accounting Software or ERP System. This is usually done by organizations that receive a seizable number of checks in a given time period. 

The advantages are that your money will be available to you before you even have it posted into your Accounting/ERP System. 

Companies that do not use a lock-box account receive the checks, post the check into their Accounting/ERP System and then forward the check to the bank to be deposited into your account. Meaning you show funds in your system that may not be available to you for another few days. 

I am sure you can see already the advantages of a lock-box account.

Today, more and more organizations move away from receiving the physical check from the bank and then have to post the checks manually into the Accounting/ERP System.  Banks and their clients communicate these payment transactions via EDI using the ANSIX12 transaction standard for a so-called 820 and 823.

An 823 format contains information like Bank details  of lock-box service provider, total quantity of checks in each format transmission, total amount involved in total checks, number of batch involved ( batch represents maximum quantity of checks in each lot). Further break up like, customer name, customer bank routing number, customer bank account  number, check number and amount, number of invoices paid, amount per invoice, discounts for each invoice, deductions if any involved and credit memos etc. 

In a fully automated world any postings into your bank account and into your Accounting/ERP System are almost synchronized in real-time. The usual process is that a bank processes all checks received by a agreed upon time on a given day and then posts these checks to your account. At the end of the day the bank runs a batch process that actually moves the funds into your account and at this time creates a payment advice transaction file (820) as well as alock-box transaction or payment file (823) and sends these files via EDI to you, to be posted into your Accounting/ERP Software. Depending on the parameters you have setup in your Accounting/ERP System payments that are a 100% match to an Open Item will be posted immediately and any open items will be cleared out. Any payment that does not match the open item amount will be posted onto a suspense account and an exception report will be generated. This exception report will then be checked and manual postings will be done in your system.

Lock-box Accounts combined with EDI have its advantages, like:

  • Data Accuracy through avoidance of data entry errors.
  • Lower Personnel needs.
  • Accelerates information exchange.
  • Improved cash flow.

 

As you can see setting up a lock-box account with your financial institution may provide some beneficial advantages to your business operations.

For more information or for a free one hour consultation please contact Oliver Schmid, either via email atoliver.schmid@4954itc.com or call +1.770.776.6182.



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