Receivables lockbox not only increases efficiency and boosts cash flow, it cuts back on the opportunity for thieves to commit fraud.

Payment fraud — any fraud that involves falsely creating or diverting payments — has long been a concern for middle-market companies trying to stay one step ahead of thieves. Criminals are adept at devising new methods for committing payments fraud, including techniques that take advantage of the growing use of electronic funds transfer (EFT) by businesses.

However, you might be surprised to learn that the greatest fraud vulnerabilities for middle-market companies lie in the very old-school practice of writing paper checks.

Eye-opening check fraud statistics

According to the 2022 Association for Financial Professionals (AFP) Payments Fraud and Control Survey, checks and ACH debits were the payment methods most impacted Sixty-six percent of organizations that were victimized by fraud in 2021 experienced check fraud, the AFP survey found.

And according to the U.S. Secret Service, the cost of check fraud to U.S. businesses is now $5 billion a year.

The AFP attributes the rise of check fraud to several factors, including new technologies that make it easier for criminals to commit this type of crime. And despite the growing use of electronic payments, middle-market companies still extensively use checks for business-to-business transactions.

Receivables lockbox: An effective fraud prevention solution

There are many different things your company can do to guard against check fraud, from keeping your check stock secure to promptly reviewing and reconciling your bank statements. According to Cadence Bank Senior Vice President and Treasury Management Sales Manager Lori Johnson, one of the most effective fraud prevention techniques is to use your bank’s receivables lockbox service.

“Segregation of duties is a well-recognized best practice for reducing fraud, and receivables lockbox adds another layer to this segregation,” says Johnson. “Receivables lockbox converts the movement of paper checks to an electronic workflow, which significantly reduces opportunities for thieves to commit check fraud.”

How receivables lockbox works

Receivables lockbox is a payment processing service that banks offer to their commercial customers. Here’s how it works:

1. You send invoices to your customers just like you normally do. But instead of having checks mailed to your office, you include a special post office box on the invoice for customers to mail checks to.
2. This PO box is monitored closely by the bank. Bank staff collect checks at frequent intervals throughout the day, and checks are then deposited with same-day ledger credit to meet early check-processing deadlines.
3. Everything gets scanned. Once the checks arrive at the bank, remittance documentation is scanned and payment information is captured and sent to your business electronically. Same-day image and accounts receivable posting files are usually available with most bank lockbox services, as are customizable output files to streamline accounts receivable posting.
4. Electronic records are kept. Check images are typically archived for up to seven years and categorized by unique client details. Proactive lockbox alerts can also be personalized to your requirements so that you are notified of all deposits on a timely basis.

How lockbox helps reduce check fraud

The easiest way for thieves to commit check fraud is to get their hands on paper checks made out to the company and alter them to be payable to themselves instead. With receivables lockbox, paper checks are removed from the process early on and moved to a digital workflow, thereby significantly reducing such opportunities. Payment information is visible only to authorized employees, and checks are deposited to the proper account.

Segregation of financial and accounting duties among more than one employee is vital to reducing fraud, and receivables lockbox adds another layer of protection to such segregation.

More benefits of receivables lockbox

Reducing check fraud isn’t the only benefit of using receivables lockbox. “This solution also boosts cash flow, since checks are deposited immediately instead of sitting in your bookkeeping department until an employee has time to process them and drive to the bank and make a deposit,” says Johnson.

In short, receivables lockbox is a far more efficient and secure solution for handling receivables management when compared to businesses receiving and processing checks themselves. “Businesses increase control and efficiency while also improving audit controls and data security,” says Johnson.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.