Lock Box Services How Does a Lockbox

Lock Box Services

How does a lockbox work for a bank customer? There are several advantages that are available with a lockbox system, including being able to access funds more readily, and for a business it means getting checks into accounts seamlessly and quickly, and earning interest on payments made by check that would otherwise be waiting for the checks to clear.

Wells Fargo lockbox service

The Wells Fargo bank launched a pilot lockbox program in the early 2000's that allowed certain banks to process checks electronically. It was an innovative electronic process that was designed to be a simple way to offer "flexible remittance processing" that offers the following services: a) it reduces outstanding sales for any given day; b) by automating manual processes the threat of theft, error and fraud is reduced; c) from a person's laptop or desktop computer, account information is readily available; and d) a lockbox improves the cash flow situation by speeding up remittances (Wells Fargo).

Meanwhile, in 2003 Wells Fargo announced that its lockbox conversion service was available to all corporate customers across the county. The first Wells Fargo banks to over the check conversion / lockbox service were located in Chicago, Denver, Dallas, Los Angeles, Seattle, Washington DC and Seattle. In an article published in the peer-reviewed journal, American Banker, the service was described as taking paper checks and converting them through a clearing house to "automated…debits" in businesses where consumers send check to large billers.

"Conversion means faster collections," according to the journalist Steve Bills, writing in the American Banker journal. Converting paper checks into electronic funds paves the way for "lower deposit fees, and often higher collection rates on checks returned for insufficient funds" (Bills, 2003, p. 1). At the time this article was written Wells Fargo was converting "…more than a million checks a month" following the initial four-month pilot rollout. In the four-month initial launch Wells Fargo was handling 150,000 paper check payments from 330,000 of its own credit card customers (Bills, p. 1).

Two days after publishing the preceding article, Bills wrote about how Wells Fargo's lockbox service can be a tool against fraud. Besides converting checks to automated clearing house debits, the Wells Fargo lockbox system gives companies "…earlier notice of non-payments," in particular with credit card customers, which gives credit card companies notice that credit lines can be cut off. It's an early guard against fraud; before that customer can make more purchases that Wells Fargo would have to absorb.

When it comes to lockbox-based accounts receivable conversion (ARC), that is the "sweet spot" for Wells Fargo corporate customers, according to a senior vice president for Wells Fargo, Keith Theisen (Bills). The lockbox check conversion service had, by April, 2003, shown that "chargeoffs" had been reduced by up to 20%, Bills explained. A chargeoff is a debt on a credit card that the bank issuing the credit card does not expect to collect (in other words, a financial loss for the bank). The quicker a bank can determine that a customer is not only delinquent, but is unlikely to be able to make the needed payments, the more money can be saved by that bank, Bills continues. Hence, one important aspect of lockbox check conversion.

The advent of the lockbox / check conversion system was basically made possible by Congress's Check 21 legislation signed into law in 2004. According to the Consumers Union the downside to this law is that for people who like to get their paper checks back, Check 21 eliminates that service; that said, consumers can ask for a "substitute check" if they wish to have that document. Consumers were advised in 2004 that their checks were clearing faster, hence checks bounced immediately if funds were not already into the account