Lockbox Banking

What is 'Lockbox Banking'

Lockbox banking is a service provided by banks to companies for the receipt of payment from customers. Under the service, the payments made by customers are directed to a special post office box, rather than going to the company. The bank will then go to the box, retrieve the payments, process them and deposit the funds directly into the company bank account.

BREAKING DOWN 'Lockbox Banking'

As with most payment processing services, there are both pros and cons to lockbox banking.

As benefits go, lockbox banking provides companies with a very efficient way of depositing customer payments. This is especially beneficial if a company is unable to deposit checks on a timely basis and/or if it is constantly receiving customer payments through the mail.

On the other hand, lockbox banking can also be very risky. Bank employees who have access to lockboxes are rarely supervised, which opens the situation up to possible fraud. The fraud primarily occurs in the form of check counterfeiting because the checks that are in the lockboxes provide all the information needed to make counterfeit checks. Companies can protect themselves from such fraud by using a bank that they trust and by constantly monitoring their lockboxes.

RELATED TERMS
  1. Accounts Receivable Conversion ...

    A process that allows paper checks received in payment for an ...
  2. Retail Banking

    Typical mass-market banking in which individual customers use ...
  3. Direct Deposit

    Electronic funds that are deposited directly into your bank account ...
  4. Relationship Banking

    A strategy used by banks to enhance their profitability. They ...
  5. Limited Service Bank

    Any type of banking business facility that is located separately ...
  6. Bank Deposits

    Money placed into a banking institution for safekeeping. Bank ...
Related Articles
  1. Markets

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  2. Managing Wealth

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  3. Personal Finance

    2015's Top Checking Account Promotions

    Open a checking account in 2015 and the bank could give you a cash bonus. Check out these top offers.
  4. Investing

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against those of their brick-and-mortar peers.
  5. Personal Finance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  6. Markets

    Choose To Beat The Bank

    From internet banking to credit unions, it's in your power to cut fees and maximize service.
  7. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  8. Markets

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  9. Investing

    What's a Correspondent Bank?

    A correspondent bank is a bank that acts on behalf of another bank, usually a foreign bank.
  10. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
RELATED FAQS
  1. Does identity theft or credit card fraud also occur with cash-on-delivery?

    Understand the process of cash on delivery (COD) as well as where identity theft and fraud may occur and some techniques ... Read Answer >>
  2. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
  3. What are the differences between preference shares and bonds?

    Learn what information banks keep on file for their customers, and understand how this information can be used to deny an ... Read Answer >>
  4. How do commercial banks make money?

    Learn the different ways commercial banks make money, including interest from loan products and banking fees charged to customers. Read Answer >>
  5. How does the deposit multiplier affect a bank's profitability?

    Find out how a deposit multiplier affects bank profitability, how it increases the supply of money in the economy and why ... Read Answer >>
  6. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center