Lockbox banking is arguably an indispensable part of doing business in the modern global economy. Banks provide localised lockboxes to receive remittance payments from customers, then collect and process the payments, typically on a daily basis. Particularly for large multinational companies, lockboxes offer substantial benefits, from expediting deposits and reducing internal processing costs to providing a local address for customers.
Lockboxes offer greater efficiency and visibility
Since the origin of lockbox banking in the 1930s, banks have offered more complete and sophisticated methods for large organisations to expedite remittance processing. By relying on lockboxes, companies can save the time and cost of collecting and processing remittances internally, as well as preparing and making deposits.
Payments can be processed and deposited to company accounts every day, helping to minimise the “float” time spent waiting for payments to arrive by post or prepping deposits. Enhanced reporting provides visibility of daily deposit amounts, fund availability and payment information, as well as scanned images of any remittance information included with each payment.
However, for as many advantages as lockbox banking provides, there are equally significant drawbacks.
Lockboxes require time and manual effort to overcome
Of course, banks don’t provide lockbox services for free, and the charges can skyrocket when they’re asked to extract the necessary detailed payment information or create image files of remittances. While remittance information is collected in the standard BAI2 lockbox file format, the details often don’t align neatly with ERP system records, leaving AR departments with the task of manually matching records, hunting down missing remittance information and investigating customer deductions.
As an established global leader in stored electrical energy solutions, Exide Technologies manages operations in more than 80 countries and used to spend unnecessary hours of manual labour every month on lockbox payment processing.
As in many progressive multinational organisations, the Exide accounting team manually downloaded lockbox files from the banking software, manually allocated individual customer remittances in the ERP system, manually created deduction codes for self-granted customer discounts and spent hours gathering missing remittance information for electronic payments.
Exide recognised that their increasingly demanding lockbox processing requirements were having a negative financial impact, and in 2009, they sought a solution that is becoming increasingly popular with progressive global companies: automated cash management and lockbox processing software.
Lockbox automation solutions provide savings, integration and control
To truly maximise their cash management operations, progressive global businesses are adopting automated lockbox processing software and benefiting from savings of time, cost and concern. Specialised, automated cash management software specifically addresses the prevalent issues with lockbox payment processing experienced by global organisations like Exide Technologies.
These software solutions integrate with all existing ERP systems and use a combination of sophisticated algorithms and specific user-defined rules to match the processed payments in a bank’s lockbox software file with open invoices in the ERP. The result is dramatically reduced workloads and greater financial control.
95% invoice automation & 99% reconciliation automation
After implementing the Cashbook automated lockbox software solution, Exide experienced more than 99% reconciliation automation and greater than 50% savings in time spent on their cash application process. They achieved a high hit rate against open AR data, with up to 95% invoice automation for their North American lockbox and up to 85% invoice automation with their European MT940 operations. The automated matching process is run overnight, so rather than begin each morning with a fresh batch of unmatched payments, Exide users only have to work on the exceptions.
Through lockbox processing automation, Exide gained a clearer view of their cash management, with control reports available to easily evaluate important metrics and a consistently updated, integrated ERP and lockbox file over which they maintain full control.
Integrated, automated lockbox processing that works
As global operations become increasingly integrated and demanding, automated lockbox processing software will prove indispensable to ambitious, progressive companies working across continents. The ability for a cash management solution to effortlessly integrate different lockbox file formats, ERP systems and bank software lets multinational organisations streamline payment processing and improve their financial performance in general.
The first step is choosing the right lockbox processing software for your organisation’s needs. Read more about Cashbook’s industry-leading lockbox processing solution or contact our team today to discuss your precise needs.