Reverse lockbox

A common treasury practice for a business is to instruct customers to mail their payments to a mailbox operated by the company's bank, in order to cash their checks more quickly. This is known as a lockbox. The reverse concept, called a reverse lockbox, is also offered by a few of the largest banks. Under a reverse lockbox arrangement, suppliers are instructed to send their invoices to the company's bank, which digitizes the invoices and forwards them to the company's accounts payable system through an online interface.

The company then flags the approval status of each invoice and transmits this information back to the bank, which pays the invoices when their payment terms indicate that they are due for payment. The bank then sends payment information back to the company's accounts payable system, indicating which invoices have been paid.

The bank can take on some of the payment approval process by working through a set of automated decision rules, such as paying all invoices below a certain threshold amount, and all invoices from a list of pre-approved suppliers. It may even be possible for the bank to access the company's purchasing and receiving systems, and conduct a three-way match based on the information in these files.

Using a bank to process some aspects of a company's accounts payable transactions shifts some control issues to the bank, which makes it easier for a company to comply with the control requirements of the Sarbanes-Oxley Act.

In short, banks can use their high-speed document management systems that are normally applied to the handling of incoming checks to the handling of incoming invoices, thereby taking some accounts payable tasks away from client companies. This also makes it less likely that bank customers will shift their business to a different bank, given the high level of customized integration needed to install a reverse lockbox system.

Related Courses

Optimal Accounting for Payables 
Payables Management