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Cash flow

Use Lockbox Processing to Streamline Receivables

Do your clients prefer to pay you by cheque? If so, you might be experiencing cash-flow delays — after all, you need to wait for the cheques to arrive in the mail, deposit them, and wait for your bank to process the payments. To speed up this process and get client payments to your bank account faster, you might consider lockbox processing.

What is a Lockbox?

With lockbox processing, your clients don’t send their cheques directly to you. Instead, they send the payments to a lockbox, which is like a post office box that only your bank can access. Each day, bank employees collect your cheques, process them, and deposit them into your company’s bank account. The bank sends you a report of the payments, so you’re always up to date on client payments. A variety of banks, including Royal Bank of Canada and the Canadian Imperial Bank of Commerce, offer this service.

How Does a Lockbox Streamline Processing?

When your clients send cheques directly to your office, your employees have to open envelopes, enter cheque amounts in your accounting software, and take deposits to the bank. A lockbox can streamline processing and eliminate all of those steps. Instead, bank employees handle all of those tasks for you. If your bank offers automatic or digital bank reconciliation, you don’t even have to worry about entering the numbers into your accounting software — that process happens automatically. If you have a small staff, or if your company receives a high volume of cheques, lockbox banking can mean a big savings in time and labour costs.

As a small business, you might be working with a tightly controlled cash flow. Lockbox processing typically speeds up deposit times, so you have access to your money faster. It’s particularly useful if you’re located far from your buyers. Your bank can set up a lockbox near your customers — that way, their cheques arrive faster, and your bank can deposit them quickly. If your business is located in Vancouver, but most of your customers are in Toronto, you might ask your bank to create a lockbox in Toronto.

Is Lockbox Banking Right for Your Business?

Before you switch to lockbox processing, it’s a good idea to consider the costs. Many banks charge for this service, often on a per-cheque basis. This might be acceptable if you process many high-value payments each month. The cost may also be worthwhile if your clients are in far-flung locations, and you frequently have problems with cheques that are lost in the mail. If you receive lots of cheques for small amounts, however, a lockbox might not be a cost-effective solution. In that case, you might look to online payment options offered through your accounting software. QuickBooks Online, for example, allows you to send invoices and accept payments online.

When you depend on cheque-based payments, lockbox processing can help you speed up deposit times. That way, you can streamline the process and keep more cash on hand. Need help tracking your accounts receivable? Improve your cash flow with invoices, payments and expense tracking. See how much cash you have on hand with QuickBooks.

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