In the real estate industry, a lockbox is a box with a combination lock, placed on the wall outside a for-sale property. Prospective buyers are given the combination and can inspect the property at their convenience without the need for an agent to be on-site for every inspection.

A similar idea has been used by banks in developing their LockBox service. This is an electronic banking service that can free you from the tasks of mail collection, processing and depositing customers’ payments. It’s ideally suited to small businesses that receive payments by mail and want their money in the bank as soon as possible. It works like this: Mailed payments are received at a single, specially designated post office box and then delivered to the bank directly for processing. The difference between this special post office box and a regular post office box is that only your customers' payments are delivered to the LockBox.

Instead of you picking up the payments, your bank's courier has a key to the post office box. They pick up and deliver your customers' payments direct to your bank.

Bank personnel open the mail, extract all of the remittance advice data and amount details and collate all of this information into a daily file that is sent to you the same day. The file can be imported directly into your accounts receivable system.

Any correspondence from your customer that is enclosed with the payment is scanned and delivered to you via the Internet or on a CD. You can have the original paper copies as well if you want them.

In summary, LockBox offers you:

·       Collection, processing and deposit of checks, money orders and credit card payments

·       Daily reporting

·       Fast reconciliation of payments against receivables

You can establish a LockBox in several different post offices or cities. A basic rule is that your LockBoxes should be set up near to major customer locations so as to reduce the amount of time between your customers' mailing their payment and the deposit into your bank account.

LockBox banking cuts down on postal delays caused by having your customers' payments delivered to your business address. Mail delivered to your place of business entails sorting at the post office so that your mail gets into the hands of the correct carrier, plus the time it takes the carrier to actually deliver it to your address.

Using a LockBox shortens the amount of time necessary to process your customers' payments. Since the check goes directly from LockBox to bank, payments are received and deposited all within the same day. Doing this work yourself can delay the deposit of the payments depending on how long it takes you to process your customers' payments for deposit, and then to actually make the deposit at the bank.

LockBox banking was first used by organizations that receive large volumes of payments from numerous customers, like utility companies and governments.

Today's increased automation in payment processing has allowed banks to reduce the cost of their LockBox banking services enough to make it economical for businesses of a smaller size.  Since most banks will customize their LockBox banking services and costs to fit your specific needs, you should contact your bank for more information.

Most businesses operate to some extent on borrowed money, but borrowing too much means you’re paying more in interest than you need to.  Borrowing too little means you’re under financed and won’t have enough capital to accomplish what you want to do.

That’s why you have to work out, as near as possible, just how much money you will really need, and when you’ll need it, before you talk to anyone about borrowing funds for your business. And of course you’ll also have to work out how to repay what you’re borrowing. Here’s a process for estimating your borrowing requirements.

Check your business plan

Start by taking a good look at your business plan. It should be an overall guide to both the amount you need to borrow and to the times when funds will be needed. And if you don’t have a business plan that tells you this kind of information, create one before going any further.

Consider your vision for the business

Where do you see the business three years from now? If growth is part of your vision it has to be funded somehow. Usually that means making an investment before you begin to get a return, and timing becomes a critical factor in ensuring your cash flow remains sufficient for business needs.

Decide the strategies you want to pursue

Each business goal identified on the business plan should be accompanied by a strategy to achieve it. Each strategy in turn should have a budget that will enable you to carry it out, and a timeframe for its completion. Relate these back to the projected income and expenses of the business overall and you’ll be able to calculate the borrowing necessary to support implementing the strategy.

Assess the resources you are going to need

Consider what resources your business will need to achieve its goals. People and equipment are always necessary, but don’t forget to plan ahead for other resources such as additional warehouse space or outside expertise (legal fees, marketing advice etc.) that might also be needed.

Get your team’s ideas

You don’t necessarily have to do all this work on your own; ask the members of your team for their input. Give them an outline of your business plan and the vision you have for the business, and then ask them what they think will enable it to reach its goals. Their insights can be helpful in identifying operational requirements that could necessitate more investment, like which machines need upgrading.

Model the projected financial position of the business

You need to prepare a financial model of the business that will indicate the effects of borrowing the funds you need. This model should demonstrate that the extra funding injected will improve profitability sufficiently to cover the repayments you will have to make. It should also show clearly that the business will have adequate cash flow at all times until the loan is repaid.

Now you’re ready to go to a lending authority and make an application to borrow the money you need. By doing your homework, you’ll know that you won’t be borrowing too much or too little, and you can be confident that the business will be able to repay the loan from the income it generates.  You’ll also be much more likely to impress the lender and get the loan.

Outstanding accounts may represent an asset on your balance sheet, but not one that a business really needs. The costs of collecting an overdue debt can be high over a period of time and put a big hole in your profit margin.

 Collections are best done using a pre-planned system rather than being handled on an ad hoc basis. Be sure you are alerted at least weekly of accounts that become overdue, and then begin a series of communications with the debtor that continues until the outstanding amount is collected. The most effective collection systems use a combination of telephone calls and letters to get results.

Collection efforts should be made in a series of communications that gradually increase the pressure on the debtor, ranging from a gentle reminder to warning of court action. A standard four step system can be used in most instances, bearing in mind that communications back from the debtor may require some variation.

Step 1. A reminder note that the debt is overdue

Step 2. A reminder letter of the previous note plus a specific date for payment

Step 3. A final demand for payment by a specific date

Step 4. Warning that legal action is about to commence unless payment is received immediately

Start with a reminder notice when an account goes overdue. It is just a ‘reminder’ and gives the customer time to make payment within a reasonable period of time. It also gives them a chance to query the amount or any other details of the account.

Be sure your notice contains the following information:

·       The customer’s trading name and full street address

·       Your invoice number and any reference number the customer has provided

·       A restatement of the purchase in question and the outstanding amount

·       Where payment is to be made

·       Options for method of payment (credit card, Internet etc.)

·       A date by which payment should be made

The notice should be sent to the person in your customer’s company who has the authority to deal with the outstanding account and process the payment. It should be a formal piece of correspondence and be limited to reminding about the overdue account, not any other matters that may be occurring between you and the debtor on other issues.  And put it in plain English.

If there’s no response to the first notice you can use either a reminder letter or a phone call to follow up. This can be worded slightly more strongly than the reminder notice - by continuing the ‘softly softly’ approach you’re likely to find yourself remaining at the bottom of your debtor’s ‘to pay’ list, while more noisy creditors are getting action.

Using a letter is common when the amount is not significant. It should mention that the first notice has not been acted on and that now you would like payment by a certain date – seven days or so is recommended.

If it’s a large amount in question, you might prefer to use the telephone and speak to the person responsible for paying the account. This isn’t so you can threaten them in person! It’s just that talking personally indicates a stronger degree of concern than a letter.

These calls should follow a pre-set script like this one:

·       Make sure you have the right person with authority to make payment

·       Briefly recap the outstanding amount and previous collection history 

·       Ask if the payment can be sent immediately

·       If not, ask if payment can be made by a specific date

·       If this date is rejected, state a date by which it must be paid

·       Let them offer a repayment date

·       If their date is unacceptable, then restate your position

·       State the action you will take if payment is not received

In a telephone call, always try for a commitment to payment. If you get any excuses that don’t sound convincing – the usual ones are claiming the payment was made some time previously, or “The check’s in the mail” – promise to investigate the situation immediately and respond with details within 24 hours. Resolve such matters immediately to prevent them becoming another basis for non-payment.

Once you have a commitment from your debtor, send them a letter or email that restates their commitment and tells them that you’ll be looking for their payment on the agreed date.

If you need to go to the next stage, making a final demand, you should definitely use a letter for legal reasons, but accompany it with a telephone call that tells them the letter has been sent and offer them a final opportunity to make payment before legal action is necessary.

Legal action itself should only be taken when you’re certain that this is going to be the only way to recover the outstanding amount. Once you’ve given a final warning, your communications are virtually at an end and the only way to resolve the situation is for them to pay their debt immediately.

Remember that legal action incurs additional costs and takes up your time.  Even if you win, the court may order payments to be spread over a period of time. Legal action should always be seen (by you) as a last resort.