What Is a Lockbox Account?
A lockbox account is a type of commercial or transaction account at a bank. There are different kinds of lockbox accounts, but they are all essentially holding accounts where money is collected from various payees.
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History
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Lockbox accounts are primarily used by businesses and charities to collect payments from customers and donors. They used to be genuine, locked strong boxes where cash and checks were deposited for counting and distribution at a later time. Now they are simply holding accounts even though they may still function as repositories for cash and check payments. These days they are more akin to accounts receivable processing services rather than physical lockboxes.
Commercial Banking
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Any company that collects large numbers of small payments during the month, whether these are cash, checks or electronic payments, needs a holding account where the inflow of payments can collect for forwarding on to processing and credit to the payee accounts.
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Securities Industry
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Asset-backed securities such as those derivatives backed by receivables from mortgages, auto loans, credit cards and other such receivables use lockbox accounts. The securities servicers collect these payments in their lockbox accounts and process them to pay interest and principal to the investors who bought the asset-backed securities.
Benefits of a Lockbox Account
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Banks like lockbox accounts because the money collected generally remains in the accounts overnight or longer. The bank can invest that money, collecting interest for its own account, because deposits into lockbox accounts usually are considered compensating balances for the customer. For example: ABC Electric Company has a lockbox for all its customer bill payments. The bank does not pay interest on ABC's deposits in the lockbox because ABC uses the bank to do currency transfers to offshore suppliers of the gas ABC sells its customers. The bank doesn't charge ABC for the currency transfer service because it doesn't pay ABC any interest on the lockbox deposits.
Common Lockbox Transactions
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When you make a utility payment, a credit card or auto loan payment, a mortgage payment, or you send in a donation to your favorite charity, that money is first collected in a lockbox account at the receiving bank. Sometimes payments are allowed to collect for more than a day before they are sent on to processing, which is why there is often a delay between when your payments are taken out of your bank account and when they are credited to your mortgage or credit card account.
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