B2B Payments

Deluxe’s CEO On Bringing The Legacy Lockbox Into The Digital Age

In the flurry of payments innovation, it can be difficult to remember that legacy tools remain commonplace, especially in corporate payments.

Take the lockbox, for example. It’s a service designed around the ubiquity of the paper check, and with checks still a popular payment tool in B2B transactions, lockbox services remain in high-demand. One of their biggest benefits for users is not only its ability to offer a secure location in which to receive paper checks; the lockbox is also critical to receiving documentation about a transaction.

Lockbox services may seem outdated in today’s ecosystem of electronic payments and cloud-based financial management platforms. But the tool’s ability to accept data along with a payment (i.e., the ability to not only receive a check payment, but know what invoice that check is for), is a functionality with which many electronic payment solutions today continue to struggle.

In a recent interview with PYMNTS, Deluxe Corporation CEO Barry McCarthy, discussed the continued relevance and importance of the lockbox for corporates’ accounts receivable (AR) operations today.

“What is the role of a lockbox today? What is its historical role? It enables payment information to travel with the payment so that the payment can be properly applied to the appropriate invoice,” he said. “In a macro sense in accounts receivable, it’s this same challenge. It’s great to get a check, or wire, or ACH, but if you don’t know what it’s to be applied to, you have a huge cash application and reconciliation challenge.”

Although receiving payment is, of course, critical, without the ability to understand which invoice that transaction is tied to, AR, finance and treasury executives are unable to accurately analyze which bills have been paid, which are late, or which may have an issue with the customer. This leads to greater problems of being unable to analyze customer payment performance or forecast incoming payments based on which invoices remain outstanding.

Modernizing the Lockbox

Although the traditional lockbox can support access to this information, the fact that B2B payments are digitizing cannot be ignored.

Increasingly, companies are receiving payments not only via paper check, but in a variety of electronic methods. And while the lockbox continues to play an important role in AR and reconciliation, it no longer addresses the entire challenge as more electronic payments come in without remittance data.

McCarthy said this is ushering in a new era for lockbox services in which lockboxes must become an integrated part of the broader AR process. Being able to integrate a lockbox and the data it collects into a company’s electronic AR and financial management platforms is key to supporting modernization efforts on a larger scale.

The emergence of faster payment networks is elevating the importance of AR functionality even more.

While faster payments can be immensely beneficial in a variety of use-cases, it’s the ability for these emerging payment networks and services like the Fed’s FedNow service, The Clearing House’s RTP, or SWIFT’s gpi to support the movement of more robust data about a transaction to move along with the funds themselves that, to some, presents the greatest value-add in the commercial payments space.

However, McCarthy emphasized that just because a transaction is able to connect AR professionals with more data, doesn’t mean the challenge of integrating that data into the broader receivables and cash management function is solved.

“I think there is so much complexity here because there are people that want to be paid by different mechanisms, there are different billing infrastructures, different ERPs, and millions of payees and payers that need to find connections,” he said. “So the probability that there is going to be one macro standard that’s going to solve every problem, I think, is unlikely.”

The Path to Integration

He did note, however, that he is “very optimistic” about the emergence of new payment services able to move remittance data along with funds. Yet the continued diversification of payments means AR and treasury management platforms will have to juggle integrating a broader array of payment methods, from Zelle to RTP, in order to solve for the reconciliation challenge.

And although payments modernization continues to promote B2B electronic payments, AR teams cannot ignore that paper checks and lockbox services will remain relevant, and indeed quite important, to their operations.

“Just like the demise of the check has been touted for a generation, that it was imminently going to go away, I think the same is true for lockbox operations,” said McCarthy. “Just like the check is not going to disappear anytime soon, neither will the lockbox.”

What is changing, though, is that AR will no longer only be about lockbox management, but instead will need to focus on integrating lockbox operations along with the rest of the mechanisms through which businesses are receiving payments today.

Further, AR is also about planning for the future. While paper checks remain common in B2B transactions, McCarthy noted that one of the fastest-growing services offered by Deluxe Treasury is its tool allowing users to send electronic checks via email, which recipients can either print and deposit as if they were traditional paper checks, or convert to ACH for deposit. It’s a spin on a legacy payment tool showcasing how there are not only new, electronic payment methods emerging, but there are also new solutions enabling legacy solutions to operate in a digital ecosystem.

The same can be said for the physical lockbox, which, said McCarthy, must be brought into the digital age.

“Imagine a digital lockbox in the future, where payments can come in and be processed and hosted appropriately, whether that is a paper check, or by digital means,” he said. “That’s the whole notion of integrated receivables, where the physical lockbox is part of it.”

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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