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?
A lockbox study is an analysis of a company's payments with the purpose of determining the number and location of remittance processors that will minimize float and costs. If the use of multiple lockbox sites is indicated by the analysis, the most efficient assignment of customers to those sites is also determined.
The scope and objective of the study must be determined at the outset of the project. Objectives include:
The following information is needed for the Phoenix-Hecht Collection Model.
- 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.
- 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.
- 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.
- Reduce the complexity of the company's banking network. The company believes decreasing the number of banking relationships will lessen administrative costs.
- 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.
- 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.
- 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.)
- 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.
- 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.
- 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
- 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:
The sample should portray an accurate, dollar-weighted, geographic distribution of the payments received by the company. Common sources of customer information used to obtain a sample are detailed below.
- 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)
The preferred format is a comma-separated file. Since Microsoft Excel can readily
save worksheets in this file type, Excel is most often used to enter the
sample data. Listed below are the specific formats for each field of information
that might be keyed. The order of the columns does not matter. A single
header row with column descriptions as the first row of data makes importing
- 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.
- 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
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.
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.
Request Performance Results from the Phoenix-Hecht Postal Survey
To request results from one or more participating wholesale lockbox processors
or networks, select the processor by location and complete
the form. You will need the Adobe
Acrobat Reader, since PDF files will be attached to an email sent to
you. Retail Mail Analysis
results are also available for participating retail processors.
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.
Phoenix-Hecht Banking Clients should visit our Client
Area to access results for their surveyed sites.