Lockbox processing is a cash management service that banks provide to corporate customers. The service remains a big business for banks. The National Check Fraud Center estimates that top bank lockbox providers process about 27 million consumer-to-business (retail lockbox) payments per month, and about 4 million business-to-business (wholesale lockbox) transactions per month.
Lockbox processing remains popular because it accelerates the collection and deposit of mailed check payments and related remittance documents. This, in turn, provides corporate billers with:
- Faster access to funds
- More timely receivables information
- Customized remittance processing
- More efficient use of office staff
Although lockbox processing is a mature service, greater efficiency and more lucrative revenues are available to banks that combine traditional payments processing with advanced document scanning.
While the consulting firm Celent estimates that approximately 70% of wholesale lockbox customers use image processing, nearly half of them still get paper back — at great expense to both banks and their wholesale lockbox clients. This suggests that banks have done a good job of image-enabling their check processing, while ignoring the supplemental remittance documents (e.g. invoices, bills of lading, etc.) that may accompany them. But it's the data from those remittance documents that drives accounts receivable posting, customer service, shipping, and more. By digitizing wholesale lockbox documents, banks can break this paper chain, delivering new operational efficiencies and improved customer service in the bargain. What's more, creating this document scanning infrastructure will provide banks with an opportunity to later target accounts receivable outsourcing or accounts payable outsourcing — a market Celent pegs at $300 million a year short term and eventually growing to $1.6 billion.
Scanning supplemental remittance documents and capturing the payments data on them refreshes wholesale lockbox processing with new capabilities for forms processing, color imaging, accounts receivable matching, and automated check and list processing — all attractive inducements for corporate billers and, most importantly, services that most are willing to pay an incremental fee to receive.
Additionally, combining document scanning with wholesale lockbox processing enables banks to automatically match check information with data from the supplemental remittance documents, eliminating payments exceptions, which cost the U.S. economy $700 million per year, according to the Department of Commerce. Exceptions also create so-called "information float," which creates hiccups in the financial supply chain and impacts days sales outstanding (DSO).
Other client benefits provided by integrating document scanning into the lockbox include:
WHAT'S IN IT FOR BANKS?
- Reduced data entry
- Consolidated payment reporting
- Streamlined accounts receivable processing
- Improved posting accuracy
- Accelerated cash flow
- Ability to provide Web access to checks and supplemental remittance documents
This isn't to say that banks don't benefit by combining document scanning and wholesale lockbox processing. Advanced scanning relieves lockbox processors of a significant amount of work.
For starters, combining document scanning with lockbox processing eliminates downstream exceptions handling by maintaining batch, bar code, and MICR (magnetic ink character recognition) integrity and ensuring high quality images of all documents in a transaction. Document scanning solutions also eliminate the need to separate checks from remittance documents. All items can be processed in comingled batches as MICR data is captured and checks are outsorted simultaneously. This ability to outsort documents also eliminates the traditional lockbox process of photocopying remittance documents and readmitting them to the workflow.
Document scanning capabilities also enable lockbox providers to use intelligent character recognition (ICR) and optical character recognition (OCR) to automate data entry and transaction balancing. Look no further than the processing of healthcare explanation of benefits (EOB) documents — where a 78-page EOB may require 20 staff hours of data entry — for the payoff here. In fact, at a time when check volumes continue to fall, some banks are seeing soaring growth in their data entry services.