One of the most common and frustrating problems growing businesses face is tight cash flow. To make funds more readily available, you can use a lockbox service to reduce the "total float" of your cash.
What's "float"? Once you deposit checks you receive from customers, you have to wait for them to clear. As the days pass, you're losing potential interest from those funds. Depending upon your cash reserve, you may even have to delay payments to suppliers until those funds are available. That delay — the sum of the "mail float" and "availability float" — is called the "total float." Some businesses can shrink the delay by using a lockbox, which can help you:
The best contacts and resources to help you get it done
Know the process — and the lingo
With a lockbox service, customers mail payments directly to a post office box. A bank employee collects those checks — often several times a day — and processes them electronically so that funds are shifted from the customer's account to yours more quickly.
I recommend: See an example of the process at
M&T Bank. Customers might ask why the payment appears as an ACH (Automated Clearing House) payment on their bank statement, so be ready to explain it.
Determine whether you are a good lockbox candidate
Restaurants and other businesses that receive all of their revenue at a retail location make poor candidates for lockbox adoption. What's more, you need to look at the size of orders that customers place and pay for by check; organizations that perform lockbox studies typically suggest that if you receive payments of $1,500 or more by mail, you could benefit from such a service.
I recommend: For a bank to complete a lockbox study, you need these four things listed on market researcher
PhoenixHecht.com's FAQ: your current deposit location, a sample of payments received (with dollar amount and Zip Code of origin), the length of your typical billing cycle and your cost of capital (how much interest you're losing by not having access to funds). Also see
lockbox studies.
Contact banks and other providers for details
Many, if not most, banks provide lockbox services.
I recommend: Lockbox service providers include
Bank of America,
Center Bank,
CitiBank,
FirstBank,
Independence,
North Shore Bank,
Ocean National and
Scotiabank. Don't forget to contact your own bank and ask for price and benefits as well. Some financial-services firms, such as
Merrill Lynch,
Emdeon and
RemitStream, also provide lockbox services.
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