The New Lockbox Paradigm
Technology is well on its way to revolutionizing the world of lockbox, making the service a far more useful financial management tool for far more companies than almost anyone would have predicted 10 years ago.
The convergence of maturing imaging technologies, a broadband Internet and “supercharged” PCs now makes it feasible and affordable to lift data from paper documents and speed it electronically to exactly where it is needed across the enterprise. After decades of squeezing financial float, lockbox providers are now leveraging these advances to take aim at information float, dramatically reducing the wait time between when mission-critical facts first surface in the lockbox and when they are ultimately made available to the customer.
Moreover, image technology has become so good and so inexpensive that even small companies can capitalize on (and afford) the extended value proposition that lockbox now offers.
Document images are simply digital pictures- – nothing more than bits and bytes of data. Extracting and converting those bits and bytes into useful information, however, is where the true advances in technology come in to play.
The classic manner in which lockboxes discerned and captured useable data- – such as invoice number- – for their corporate lockbox customers was for a bank clerk to visually scan the paper remittance documents, locate the information and manually key enter it. That raw data would then be sent electronically via file transmission (or in the real good old days by magnetic tape) to the corporate customer that night or early the next day.
Now, however, improved optical and character recognition technologies are quickly displacing these manual keystrokes, making the data capture process quicker and more accurate. Intelligent Character Recognition (ICR), for example, was previously limited to recognizing information in standard fields across pre-defined remittance documents. Today, ICR technology has evolved to be so robust and flexible that it is being applied with great success to the wide variety of non-standard wholesale lockbox documents produced by payers’ accounts payable systems.
Gone are the days when automated forms processing required constructing and storing a template built to read a specific document format. Back then, it was only cost effective if that format appeared often and contained a substantial amount of data that otherwise would have to be keyed. By contrast, some of today’s image lockbox systems – -by searching for key words, numbers or alphanumeric configurations – -can scan a non-standardized form until it finds the appropriate target. The system then reads and captures it, regardless of location. For example, the system might search for a standard state abbreviation followed by a five-digit number and apply ICR to that field and the two or three lines above it to capture an address automatically. Or the system may search for a particular alphanumeric combination that signals an invoice number.
Lookup and substitution tables are also used extensively to minimize data entry. Previously captured data is stored in a database where it can be retrieved and used to populate new data fields without re-keying. The combination of account number and ABA transit routing number, all found on the check MICR line, can identify a particular payer and recall from the database previously stored data about that payer- – such as payer name or address. Or a ZIP code can be used to populate city and state address fields. Fewer keystrokes mean fewer errors and more time saved.
Getting critical data into the user’s hands quickly is enhanced by a process known as event notification.
Event notification is not new to the industry. Proactively notifying appropriate individuals within an organization (via either email, pager or PDA) of specific processing related events- – such as those triggered by receipt of positive pay exception items or based on daily dollar deposit reporting events- – has been common for several years.
Recently, however, this capability has made its way into the lockbox world. A seller of goods awaiting an overdue multi-million dollar payment from a customer, for example, can now choose to receive an automatically generated email- – an event notification- – from the bank minutes after that check has been processed in the lockbox department, enabling the seller to ship an order of goods being held. A real estate agent or landlord awaiting a multi–million dollar payment from a corporate tenant might stop legal action just after receiving notification from the bank that it had received and processed the overdue check, saving money and aggravation.
Event notification technologies are being applied to enable reporting of other common lockbox processing conditions- – such as exception items.
A corporation can subscribe to a receivables matching service from its lockbox bank. Receivables matching helps eliminate exceptions by comparing incoming payments with data contained in an extract of the customer’s accounts receivable file, typically the account numbers and balance due. The collecting corporation also can define processing rules and destination accounts for each expected payment. This matching service reduces error rates, improper postings and delays in depositing and applying funds, leading to improved customer satisfaction.
When no match is found within preset tolerances, exceptions will still exist and must be resolved. These lockbox exception items can be imaged and posted on the bank’s website and the corporation automatically notified by email that these exception items are waiting. Fields where information is missing or incorrect are highlighted for easy identification and review.Customers log on to the wwebsite and make any necessary changes or additions directly.As a The result, a higher percentage of items can be processed by both the bank and customer’s systems in a straight-through manner.
Exception items now can be investigated the same day they are received in the lockbox- – in fact, images of lockbox items can now be made available for review within minutes of the batch of items being processed. The end result is you no longer have to wait for the paper trail. In some cases, the corporate A/R staff may resolve the mismatch that same day so that the bank can transmit the item as a clean transaction, ready to post automatically. In other cases the corporate collections or customer service staff can contact the customer right away to find out why a short payment was made.
The resulting increased speed and accuracy of these newly enabled processing capabilities have broad, cross-industry appeal. Corporations are finding the reasons for using today’s technologically driven image lockbox solutions to be compelling. Some of these reasons are improved funds availability (most notably on those exception items that would be returned to the company unprocessed), the ability to provide an enhanced level of service to their customers, and generally being able to make smarter, faster business decisions.
Furthermore:
Internet delivery of document images makes the information available quicker; there is no delay while paper documents are shipped. Exception payments can now be resolved by the customer online, the day they are received/processed in the lockbox.
With enterprise-wide access, an image can be viewed and used by any number of people at the same time. Instead of relying on the proverbial “sneaker net” to distribute information (which is time-consuming, costly and inefficient), authorized end users in collections, cash application, A/R, customer service, sales or wherever can be given passwords and sent directly to the bank’s lockbox image site to see only the information they need.
Today’s image archives can be effectively indexed by every data element that the bank captures. A user can type in an invoice number, a specific payment amount, a date- – or ask for all payments from a given disbursing account number over a range of dates- – and all associated information and images will be made available within a matter of seconds. This range of data access flexibility can be configured on a customer, lockbox or user-specific level.
This progress in handling paper-check based payments comes at a time when some people are predicting that the need for it will gradually disappear. For example, Check 21, which becomes effective in October 2004, is designed to facilitate the exchange/clearing of electronic check images instead of the actual paper checks. Imaging a check at the point where it is first presented (whether it be at an ATM, branch location or retail point of sale) and then transmitting the image electronically within seconds to the paying bank for clearing and settlement will eventually remove the cost, time and burden required to transport paper checks all over the country.
In the past, having to operate in the physical world has imposed both time and geographic limitations that are now disappearing. Checks that evaded the lockbox and went directly to the corporation had to be sent to the bank by messenger or bundled into overnight packages. Once Check 21 is in place, businesses will be able to truncate checks at their location by using a desktop scanner and bank-provided software to image the checks and electronically send an image deposit file to the bank for processing.
For example, a stock brokerage with hundreds of offices receiving checks from investors and hundreds of local depository accounts at dozens of different banks could consolidate remote deposits into a single account and a single bank. The potential savings are huge- – reduced labour and transportation cost, fewer accounts and bank relationships, reduced reconciliation, instant deposit concentration, and the potential for multiple deadlines and improved availability.
In the imaging and post Check 21 world, banks that were formerly constrained by geography to regional status will be free to become national or even global players. Banks are rethinking their whole approach to outsourcing and putting together networks of providers tailored to leveraging the new technology to maximize speed and efficiency. Geography still will be a factor as long as paper checks arrive by mail, but soon any bank, anywhere in the country, will be able to contract with third-party providers to capture the images and transmit them to the bank processing centre, which can be anywhere the bank wants it to be. An armoured carrier picking up deposits, for example, could image items and transmit them to the bank instead of hauling them there.
While companies with high volumes of incoming checks may still find it economical to use a lockbox service, others may find the option of using remote image deposit applications better suited to their needs. Some may even choose to have both capabilities in their collection arsenal.
It all adds up to a new paradigm. With the Internet, broadband communication and supercharged PCs now available to the masses, images and data can be quickly accessed and used wherever and whenever needed- – at any time, around the corner or around the world, whether you’re a mom-and-pop or Fortune 500 cCompany.
Clearly, it’s no exaggeration to call such technology-driven change a revolution. It truly is the information age.