What is a lockbox study?
Why perform a lockbox study?
What information is needed for a study?
Where do I get the remittance information?
Which format should I use to store the remittance sample?

What is a lockbox study?

Why perform a lockbox study?

1. Determine if a lockbox is needed. A corporation receiving large dollar checks (averaging $1500 or more) by mail from its customers may benefit from a lockbox.
2. Evaluate the performance of current lockbox providers and reassign customers within the current lockbox system. Simply fine-tune the existing system without changing lockbox providers.
3. Perform a complete realignment of the lockbox system because the company's remittance pattern has changed since the last lockbox study. Changes can occur due to sales growth (or contraction), changing customer base, acquisition or divestiture of subsidiaries, divisions or product lines, changes at the lockbox bank, in the postal system or in the check collection process.
4. Reduce the complexity of the company's banking network. The company believes decreasing the number of banking relationships will lessen administrative costs.

What information is needed for the study?

1. Company's cost of capital - The rate used to translate float gain or loss into the equivalent dollar benefit or cost, often called the opportunity cost of float. The rate used should be agreed to by the study corporation and should reflect the corporation's general use of additional working capital for longer- term investment or debt reduction. It is crucial that the corporation be consulted about this rate, since all savings proposed by the model are derived based upon this rate.
2. Length of the sample period - should reflect at least one complete billing cycle, usually one month. Longer periods, which need not be continuous, may be needed to capture a representative sample.
3. The deposit location(s) currently used by the company. (If more than one deposit location is currently used, this will have to be indicated in the remittance sample.)
4. Remittance sample - The sample should portray an accurate, dollar- weighted, geographic distribution of the payments received by the company. If the sample does not accurately represent the major dollar locations from which customers are mailing their remittances, it will invalidate the study. The geographic distribution of the sample is much more important than whether the month or period had high or low sales.

Remittance Sample:

Necessary Data:

• Zip Code or State Abbreviation of the mailing location or Routing Transit Number (RTN) of the check
• Dollar Amount of the remittance
• Current Deposit Location - only needed in the sample if there is more than one deposit location. Used to monitor the current multi-site system performance. The optimal lockbox sites selected will not be impacted by this data.

Optional Data:

• Routing Transit Number (RTN) of the check - The most accurate float measurement results from the use of both zip code for mail origination and routing transit number for drawee bank identification from individual payment items.
• Division - used to analyze or assign lockbox sites by division or another accounting entity.
• Customer Name - used in advanced analyses to examine payment practices of individual customers.
• Item Count - The number of items represented in the Dollar Amount if aggregate data is used.
• Postmark and Deposit Dates - used to monitor the current receivable system performance. The optimal lockbox sites selected will not be impacted by this data. This data is difficult and expensive to gather and requires encoding individual items.

Alternative to Remittance Sample:

The Collection Model's Check Sample Wizard can create a sample when no other source of remittance data is available.

The wizard prompts for the following:

• Current processing site
• Total dollars processed in the time period
• Geographic indication of where remittances originate (by region, state, or Phoenix-Hecht mail origination city)

Where do I get the remittance information?

• The corporation's internal accounts receivable or billing system may be used to capture a sample. Printing standard reports to a computer file is an effective approach.
• A corporation's marketing department may have a list of "top" customers whose payment characteristics may be obtained from accounts receivable information.
• An endpoint analysis statement from the current bank may be captured electronically. The Collection Model will assume the origin of mailing is local to the endpoint.
• A receivable sample of individual checks and envelopes may be encoded.

Which format should I use to store the remittance sample?

• Zip Code - First 3 digits (include leading "0" if applicable) sufficient, full 5 digits, 9 digits, or 10 in the format XXXXX-XXXX acceptable
• State Abbreviation - standard 2 character state code
• Dollar Amount - whole dollars preferred, currency formatted accepted
• Current Deposit Location - number between 100 and 89999
• RTN - 8 digit (include leading "0" if applicable) sufficient, full 9 digits acceptable
• Division - number between 1 and 99
• Customer Name - 24 characters or less
• Item Count
• Postmark Date - mmdd (ex. 0105 represents January 5)
• Date Deposited - mmdd

Suggested Readings:

Measuring Modeling and Monitoring Your Lockbox
An in-depth discussion of how mail moves through the postal system, how mail times and availabilities are measured by Phoenix-Hecht, how to recognize the need for a lockbox study, how to approach doing a lockbox study, and how to monitor your lockbox performance.
50 pages
Phoenix-Hecht
Download PDF
Request Printed Copy

Mail Time Measurement White Paper
An explanation of the factors that can cause differences between mail time as measured by Phoenix-Hecht and mail times observed in a lockbox study.
4 pages
Phoenix-Hecht
Download PDF
Request Printed Copy

The Phoenix-Hecht Postal Survey™

Request Performance Results from the Phoenix-Hecht Postal Survey™

Phoenix-Hecht is only authorized to release this information to requestors in Treasury Management positions at companies considered to be potential prospects for lockbox services.