8/3/2019 National Check Fraud Center Lock Box Banking

1/2

National Check Fraud CenterLockBox Banking-Pro & ConIs Lockbox Banking right for You?

Do your customers mail payments to you? Are your customers dispersed across a region or the country? Do you hold checks over a day or two because your staff doesnt have the time to process them?

If so, you may want to consider the benefits of automated lockbox processing services.

Using lockbox banking is a cash flow improvement technique in which you have your customers' payments delivered to aspecial post office box instead of your business address.

The difference between this special post office box and a regular post office box is that only your customers' payments aredelivered to the box. Instead of you picking up the payments, your bank's couriers have a key to the post office box, and theyremove its contents and deliver your customers' payments to your bank. Your bank opens the payments and then processesthe payments for deposit directly into your bank account. Depending on the nature of your business, the contents of yourlockbox can be removed and processed once a day, or more often if required.

You can establish lockboxes in several different post offices or cities. A basic rule is that your lockboxes should be set upnearest to your customers to reduce the amount of time between your customers' mailing their payments and the deposit intoyour bank account.

Lockbox banking accelerates the payment and deposit portion of your cash conversion period in two different ways. First,lockbox banking cuts down on any postal delays caused by having your customers' payments delivered to your business

address. Mail delivered to your place of business entails some extra sorting so that your mail gets into the hands of the correctcarrier, not to mention the added time it takes the carrier to actually deliver it to your address. Second, using a lockboxshortens the amount of time necessary to process your customers' payments, by having your bank open the payment envelopesand deposit them directly into your bank account. Since the payment processing is done at the bank, your customers'payments are received and deposited all within the same day. Doing this work yourself can delay the deposit of the paymentsanywhere from one to two days depending on how long it takes you to process your customers' payments for deposit, and toactually make the deposit at the bank.

Lockbox banking is typically used by businesses that receive payments from numerous customers. Your utility companies andlocal cable TV franchises are two examples of businesses that are likely to be using lockbox banking. Even city and countygovernments are using Lockbox banking in the collections of taxes. Don't shy away from lockbox banking just because yourbusiness isn't as large as your local utility or cable TV franchise. Today's increased automation in payment processing hasallowed banks to reduce the cost of their lockbox banking services enough to make it economical for businesses of any size.Since most banks will customize their lockbox banking services and costs to fit your specific needs, contact your bank for moreinformation.

Sample of Lockbox process

Lockbox Problems:

8/3/2019 National Check Fraud Center Lock Box Banking

2/2

In many financial institutions, the individuals in the lockbox area are the newest employees or are part-timers. Some of them are poorlysupervised, poorly paid, not well-trained, and are vulnerable to temptation, and that has led to the latest fraud wave. Authorities haveuncovered a large number of instances where employees working in lockbox areas have been paid a fee by criminals, typically $50 percopy, to turn over copies of the checks sent to the lockbox. The copies equip the thieves with everything they need to create counterfeitchecks -- account holder's name, address, phone number, account number, bank name, bank routing number, check number and anexample of an accepted signature on the account.

This scenario radically improves the odds in favor of the counterfeiter and against the bank. By having access to a large number of

accounts on which to counterfeit checks, the cr iminals are able to increase their chances of avoiding detection for a number of reasons.First of all, if they keep the amounts relatively small, their fraudulent activity probably will not be discovered until after the customerreceives his next bank statement, plus the bank is not likely to spot the fakes because the amount will be below its cutoff for sightexamination and, even if the bank examines the check, the signature might be identical to the legitimate one if the criminals use goodscanning equipment. Second, many customers do not promptly examine their bank statements, so some counterfeits may go undetec tedfor months. Third, even when the counterfeits are reported, it would take some real detective work to determine that the counterfeits onseparate accounts are, in fact, related. Fourth, even when the pattern is spotted, there is no good way to identify future fakes. The onlysure method for stopping the losses is to have customers whose accounts were compromised close the accounts and open new ones .

Prior to this new twist on counterfeit check creation, thieves would customarily make several duplicates of a particular check, such as apayroll check on a major corporation. Once the activity was discovered, the authorities could put out a warning bulletin to let merchantsand banks know that counterfeit checks on that company in a particular amount had been unc overed and everyone could watch out forthose particular checks. With this new method of gathering information to produce counterfeits, thousands of unique items could beproduced, leaving no pattern to follow.

How do you prevent this type of crime? Monitor lockbox operations more closely; Locate lockbox operations far from a photocopy machine; Make random, unexpected visits to the lockbox area; Be careful who you hire; Be alert to the possibility of fraud; such as when a customer notifies you that a counterfeit item has been paid on his account.

What can Lockbox Banking do for you? Faster access to your funds More timely receivables information Customized Remittance Processing Greater Remittance Processing More Efficient use of your office Staff

HIGHLIGHTS OF LOCKBOX BANKING:

Lockbox processing is a cash management service provided by banks to their corporate customers. Lockbox services aredesigned to accelerate the collection and deposit of check payments, sent with accompanying remittance document(s), throughthe mail.

Lockbox services are provided almost exclusively by large banks. Of a total of 4.1 billion checks processed by U.S. banks inlockbox operations in 1994, 75 percent were processed by banks with over $5 billion in assets, and over 98 percent wereprocessed by banks with over $1 billion in assets.

Lockbox is a mature, consolidating banking business. Competitive break-even volumes are rising, and banks are beingpressured to either increase their volumes, exit the business, or out source the function. For these reasons, image technology isbeing rapidly adopted in lockbox processing by banks that continue to provide the function, to achieve higher processingproductivity (particularly in retail lockbox) and to provide new image-based services to customers (particularly in wholesalelockbox).

Retail lockbox tends to involve higher processing volumes than wholesale lockbox. The leading retail lockbox bank processesabout 27 million items per month, while the leading wholesale lockbox bank processes only about 4 million items per month.

Intelligent character recognition (ICR), optical character recognition (OCR), and courtesy amount read (CAR) technology arebeing adopted rapidly for automating the amount entry and transaction balancing tasks in lockbox processing, therebyincreasing processing efficiencies and productivity.

High-volume retail lockbox systems tend to be tightly integrated, single-vendor solutions from industry providers of high-speed reader/sorter equipment (particularly BancTec and Unisys). Wholesale lockbox, with its lower processing volumes andgreater requirement for customized features, is more frequently non-automated, or automated through software provided byindependent third-party suppliers, particularly in lower-volume wholesale lockbox operations. don't simply credit thecustomer's account. Look for any clues about the source of the counterfeit. With the customer's permission, notify your statebankers association and your local clearinghouse and law enforcement authorities.