Today, financial institutions can realize continued growth in one of the most mature of treasury management services — wholesale lockbox (WLBX) — even as B2B check payments inexorably relinquish their prominence to electronic alternatives. However, doing so may require some banks to move from their complacent overreliance on lending and invest both in upgrading lockbox platforms and revisiting selling strategies. Others simply need to put their existing capability to better use. Growing the business will not require massive capital spending. Even if a solution refresh is needed, a growing number of application service provider (ASP) and outsource alternatives exist.


Wholesale lockbox has enjoyed a prominent position in cash management banks' product portfolios for decades. For much of the products' distinguished history, little has changed — until recently. The most marked characteristic of lockbox evolution has been its response to the increasing importance of information delivery. Accelerated funds availability — WLBX's historic reason for being — is a good thing, but equally important is the client AR's ability to post the cash.


Doing so for exception items requires both timely information delivery and workflow-based tools to allow collaboration between client and lockbox. Further, sustainable exception reduction requires systems that convert timely information into actionable insight to uncover and fix root causes. Many WLBX operations aren't there yet, and fewer clients show willingness to adopt such advanced functionality. Those that have, however, enjoy significant value.


Modern WLBX platforms have many "moving parts.•bCrLf Although there are clear solution variations among providers and differences in naming convention, today's WLBX consists of four components that can be optionally added to the basic lockbox service. The fifth component, integrated remote deposit capture, could be considered as a capture alternative to image lockbox.


Basic WLBX has been offered by banks for some five decades now, since before technology platforms for WLBX existed. Basic lockbox consists of:

ÃËœ  Receiving incoming mail at regular intervals and sorting it by lockbox

ÃËœ  Document extraction as well as the separation of check payments from the original remittance documents

ÃËœ  Preparation of checks for deposit (including deposit balancing, power encoding or image capture and reporting)

ÃËœ  Assembly of remittance documents per client instruction and return of items to the client (typically by overnight mail)


Image lockbox simply refers to the delivery of remittance documents via image — either through an Internet portal, CD-ROM or both. First acquired by large WLBX financial institutions, basic image lockbox functionality has been available since 1995. Originally, image lockbox was designed to replace paper delivery, but a significant number of WLBX clients persist in their desire to have paper returned to them — even image lockbox clients! The utilization of image-based workflow can improve receivables processing for both the lockbox processor and its clients. Clients benefit by routing documents electronically for clarification to resolve exceptions, locate specific payments quickly to apply cash and approve credit and reduce paper storage costs. Processors enjoy multiple processing efficiencies through image workflow in addition to the revenue-related benefits.


Electronic lockbox, sometimes referred to as consolidated receivables, has become a growth engine for processors so equipped, as businesses slowly receive more electronic payments even as remittance remains predominantly paper-based. The idea behind electronic lockbox is to capture all forms of payment (typically check and ACH) and remittance while providing clients a consolidated posting file for their AR systems. The client benefits from a single posting file along with a single place to go to resolve exceptions. The processor enjoys additional revenue associated with the service as a hedge against slowly and predictably declining check volume.


Same-day decisioning is a response to AR departments' desire to work exceptions as early in the process as possible by addressing potential exceptions online. Using same-day decisioning portals, lockbox customers gain the ability to interactively review and correct exceptions on an intraday basis so that the transactions can be included in their daily deposit and accounts receivable transmission.


Cash application (AR matching) takes same-day decisioning one step further by automating the process of exception resolution, thereby reducing the number of exceptions clients need to address. Algorithms look at multiple data beyond PO numbers in an attempt to find a match, such as shipment date, invoice amount and company name or address. Items not matched are made available to client users in the same manner as above. Additional workflow and analytics raise the bar considerably in helping reduce exceptions instead of simply processing them more efficiently.


Today's wholesale lockbox landscape is anything but static. Celent observes these dynamics at work to create a new and increasingly competitive landscape:


ÃËœ  Growth in the number of financial institutions selling WLBX services. Smaller institutions and traditional retail banks (e.g., WAMU) are entering the arena to supplement lending ambitions.

ÃËœ  Gradual but inevitable consolidation of WLBX processors. The recent growth of third-party processors has been remarkable. Once the domain of large financial institutions, wholesale lockbox solutions are increasingly being provided by non-financial institutions.

ÃËœ  Increasing integration of remote deposit capture (RDC) with back-office WLBX workflows (a.k.a. virtual lockbox). The trend has been slow in coming relative to the avalanche of check-only RDC solution deployments.

ÃËœ  Painfully slow migration from traditional paper lockbox to full image processing.

ÃËœ  Growing pricing pressures driven by today's low interest rate environment and industry over capacity.

ÃËœ  Increased verticalization of solutions and selling efforts. Health care solutions in particular, once the purview of a few largest banks, will soon be table stakes.


Let the good times roll? Competitive, yes — but filled with opportunity and risk. Good times may indeed lay ahead for well-prepared financial institutions in the arena of receivables automation. There are distinct, tangible opportunities in WLBX. 


Bob Meara [] is a senior analyst within the banking group of Celent, a research and consulting firm focused on the application of information technology in the global financial services industry.