Accounting Best Practices, Fifth Edition

7–24. Institute Lockbox Collections

Customers sometimes have difficulty in sending their payments to the correct address; they send them to the attention of someone they know at a company, such as a salesperson, or they send it to the wrong company location. Sometimes, even if they send a payment to the correct company location, the mailroom personnel mistakenly direct the payment to the wrong department, where it languishes for a few days until it is rerouted to the correct person. Finally, even if the payment goes to the correct person in the correct department, that person may not be available for a few days, perhaps due to sickness or vacation. In all of these instances, there is a delay in cashing checks and, more importantly from a collections standpoint, there is a delay in applying checks to open accounts receivable. When this delay occurs, the collections staff may make unnecessary phone calls to customers who have already paid, which is a waste of time. How can one eliminate this problem?

The easiest method for consolidating all incoming payments is to have them sent to a lockbox, which is a mailbox that is maintained by a company’s bank. The bank opens all incoming envelopes, cashes all checks contained therein, and forwards copies of the checks to a single individual at the company. The advantage of this approach is that if all customers are properly notified of the address, all checks will unerringly go to one location, where they are consolidated into a single packet ...