National Check Fraud Center

LockBox Banking-Pro & Con

Is Lockbox Banking right for You?

If so, you may want to consider the benefits of automated lockbox processing services.

Using lockbox banking is a cash flow improvement technique in which you have your customers' payments delivered to a special post office box instead of your business address.

The difference between this special post office box and a regular post office box is that only your customers' payments are delivered to the box. Instead of you picking up the payments, your bank's couriers have a key to the post office box, and they remove its contents and deliver your customers' payments to your bank. Your bank opens the payments and then processes the payments for deposit directly into your bank account. Depending on the nature of your business, the contents of your lockbox can be removed and processed once a day, or more often if required.

You can establish lockboxes in several different post offices or cities. A basic rule is that your lockboxes should be set up nearest to your customers to reduce the amount of time between your customers' mailing their payments and the deposit into your bank account.

Lockbox banking accelerates the payment and deposit portion of your cash conversion period in two different ways. First, lockbox banking cuts down on any postal delays caused by having your customers' payments delivered to your business address. Mail delivered to your place of business entails some extra sorting so that your mail gets into the hands of the correct carrier, not to mention the added time it takes the carrier to actually deliver it to your address. Second, using a lockbox shortens the amount of time necessary to process your customers' payments, by having your bank open the payment envelopes and deposit them directly into your bank account. Since the payment processing is done at the bank, your customers' payments are received and deposited all within the same day. Doing this work yourself can delay the deposit of the payments anywhere from one to two days depending on how long it takes you to process your customers' payments for deposit, and to actually make the deposit at the bank.

Lockbox banking is typically used by businesses that receive payments from numerous customers. Your utility companies and local cable TV franchises are two examples of businesses that are likely to be using lockbox banking. Even city and county governments are using Lockbox banking in the collections of taxes. Don't shy away from lockbox banking just because your business isn't as large as your local utility or cable TV franchise. Today's increased automation in payment processing has allowed banks to reduce the cost of their lockbox banking services enough to make it economical for businesses of any size. Since most banks will customize their lockbox banking services and costs to fit your specific needs, contact your bank for more information.

Sample of Lockbox process

lockbox image


Lockbox Problems:

In many financial institutions, the individuals in the lockbox area are the newest employees or are part-timers. Some of them are poorly supervised, poorly paid, not well-trained, and are vulnerable to temptation, and that has led to the latest fraud wave. Authorities have uncovered a large number of instances where employees working in lockbox areas have been paid a fee by criminals, typically $50 per copy, to turn over copies of the checks sent to the lockbox. The copies equip the thieves with everything they need to create counterfeit checks -- account holder's name, address, phone number, account number, bank name, bank routing number, check number and an example of an accepted signature on the account.

This scenario radically improves the odds in favor of the counterfeiter and against the bank. By having access to a large number of accounts on which to counterfeit checks, the criminals are able to increase their chances of avoiding detection for a number of reasons. First of all, if they keep the amounts relatively small, their fraudulent activity probably will not be discovered until after the customer receives his next bank statement, plus the bank is not likely to spot the fakes because the amount will be below its cutoff for sight examination and, even if the bank examines the check, the signature might be identical to the legitimate one if the criminals use good scanning equipment. Second, many customers do not promptly examine their bank statements, so some counterfeits may go undetected for months. Third, even when the counterfeits are reported, it would take some real detective work to determine that the counterfeits on separate accounts are, in fact, related. Fourth, even when the pattern is spotted, there is no good way to identify future fakes. The only sure method for stopping the losses is to have customers whose accounts were compromised close the accounts and open new ones.

Prior to this new twist on counterfeit check creation, thieves would customarily make several duplicates of a particular check, such as a payroll check on a major corporation. Once the activity was discovered, the authorities could put out a warning bulletin to let merchants and banks know that counterfeit checks on that company in a particular amount had been uncovered and everyone could watch out for those particular checks. With this new method of gathering information to produce counterfeits, thousands of unique items could be produced, leaving no pattern to follow.

How do you prevent this type of crime?


What can Lockbox Banking do for you?

HIGHLIGHTS OF LOCKBOX BANKING:


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