Improving Lockbox Performance & Cost: A Case Study

By Randy Smestad

Ambius, the world’s largest provider of interior landscaping and maintenance services, receives over 12,000 customer payments a month by check from businesses around the country.  While we continue to try to move customers to electronic payment methods, over 90% of our B-to-B customers continue to pay with physical checks to control cash flow and document approvals.  As CFO, I recognized that the cost of continuing to utilize the traditional bank lockbox solution was becoming cost prohibitive and I knew there had to be a better solution.

Our Challenge
Customer payments were sent to Ambius via our post office box maintained by our bank.  Payments received were physically transported at least once daily to the bank for processing by their lockbox department.  Bank personnel then had to open the mail, sort, enter, and scan the check and any remittance stub, ultimately creating an electronic file of payments received.  This file was transmitted electronically to the company for payments to be applied against the company’s outstanding accounts receivable file.  One third of the companies failed to include the remittance advice, or included only partial information.  These exceptions left the bank with an onerous task of deciphering them for proper application.  Indecipherable submissions were photocopied and sent to Ambius for manual review and processing.  The bank added extra fees for handling these exceptions, and exceptions slowed down the proper matching to our customer records.  With the bank pressing for even higher fees associated with invoice file matching and check imaging, I knew I needed to look for alternative solutions.

A Solution
The key to success was to dramatically improve the process.  I researched the market and found a highly qualified supplier of bank lockbox processing software that was willing to explore the commercial market.  Tangent Systems agreed to work with Ambius to tailor their existing software  to work in a commercial environment.  Tangent developed a turnkey DocuTran system within weeks.

Customers now send payments directly to Ambius’ own post office box and we contract for daily delivery by courier each morning to the company.  Mail must be opened, and “clean” remittances are separated from those that require extra handling.  Payments are batched in groups and fed through the telephone-sized check transport machine.  DocuTran automatically checks Ambius’ database of invoices, confirms the invoice number, and extracts the account number and invoice dollar amount – an important step in the system’s quality control that immediately catches any operator errors.  The check amounts are read automatically by CAR/LAR (Courtesy Amount Recognition/Legal Amount Recognition) and balanced.  DocuTran then electronically updates the individual accounts receivable records.

Furthermore, we enhanced the system so that physical checks are no longer sent to the bank for deposit.  The bank only receives an electronic file from us daily, which improved our float, further reduced labor for processing, and lowered the deposit cost for each item.  This approach has improved efficiency at Ambius by:

•    Addressing exceptions quickly;
•    Reducing the data entry burden;
•    Improving internal and external customer service;
•    Eliminating next-day posting errors;
•    Providing remote access to historical information at other Ambius branches; and
•    Improving DSO by approximately four days.

Return on investment was extremely high, with full payback in less than six months.  We achieved a cost reduction in labor and bank fees in excess of $150,000 annually.  Improvement in bank float by a full day further enhanced our savings.

Bank lockbox pricing clearly does not reflect the reality of what this new, simplified technology can provide.  I believe anyone with more than 2,500 checks per week would benefit from this solution.  There is no question that in-house processing will dramatically improve quality, decrease cost, and improve your customer satisfaction.  The only people that should be concerned are the banks.


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