In this rapid-paced digitalized world, the internet has made possible different payment methods such as ACH (Automated Clearing House), Wire etc. While the volume of transactions of these payment methods is leapfrogging day by day, age-old ‘Check’ payment is still prevalent and has paved its way to existence. This is the reason companies are still opting for lockbox service, offered by their banks, to speed-up their check-based collection processes.
What is Lockbox Functionality?
Lockbox service is offered by banks to companies wherein they open multiple post boxes in different locations based on their customers’ geographical diversity. Customers direct their checks to the nearest lockbox instead of directing it towards the company. Bank, having access to the company’s lockboxes, collects these checks from customers, processes them and deposits them into the company’s bank account. Simultaneously, the bank notifies the company about these customer remittances so that company can close its receivables accordingly. In return, bank charges a nominal fee for the service which is way below than the cost that business may have to incur for human resources to collect these payments by themselves.
In other terms, the lockbox is like outsourcing part of your collection activities to banks. Below pictures provide a graphical difference between these two processes:
1.Speedy and Steady Cash Flow with reduced ‘Mail Float’: Faster and Steady Cash flow is something that every business is thriving for these days. They ant their Days Sales Outstanding as minimal as possible. Lockbox delivers just that by reducing time in which ‘Check’ payment document changes hands from the Payer to Payee through postal system, which is called `Mail Float’. Since the bank accesses these lockboxes every day and processes remittances directly, this mechanism provides steady cash flow to the company.
2.Faster Check Clearance: Instead of a normal check process where business collects check documents and then remits the same to the bank, in the lockbox process, the bank collects the document and processes it straightaway. This significantly reduces the clearance process time.
3.Reduced Cost: Corporates don’t have to spend money on keeping additional manpower for this activity.
How does Oracle Cloud add value in Lockbox Process?
Oracle Cloud receivables provide a capability to automate your lockbox process by integrating with the bank. Oracle Cloud can consume the lockbox file that banks share and creates receipts automatically for different customers using this data. These receipts can then be applied to appropriate transactions based on Auto-Match and Auto-Cash rule sets. Thus, it eliminates any requirement for manual intervention. However, to process this, there are a few configurations that need to be done.
Here are the steps to implement a lockbox in Oracle Cloud
Step 1: Define Bank, Bank Branch, and Bank Account: This is the bank account wherein the money will be deposited.
Go to ‘Manage Bank’ and add information such as Bank Name, Bank Addresses etc.
Go to ‘Manage Bank Branches’ and add relevant branch information.
Go to Manage Bank Account and add bank account details:
- Assign legal entities which own this account.
- Check ‘Receivables’ option in ‘Account Use’ to make sure this bank account is accessible in receivables.
- Assign appropriate business units against which AR receipts are going to be created
- Enable multi-currency option if receipts are to be created in currencies other than ledger currency
Step 2: Create Receipt class and methods for the lockbox:
Receipt class decides how receipt is going to be created, remitted and cleared in Cash Management.
Receipt method is linked to the receipt class and determines which bank accounts to be deposited and how accounting is to be driven.
- Use Creation method ‘Manual’ if you want to create manually using Create Receipts page in Oracle
- Use Creation method as ‘Automatic’ if you want to create receipt using the ‘Automatic receipt creation’ program
For lockbox, keep creation method as ‘Manual’.
Remittance Method: Since the creation method is ‘Manual’, keep the remittance method as ‘No Remittance’.
- Select ‘Directly’ if you want receipts to be cleared directly at the time of receipt entry
- Select ‘By Automatic Matching’ if you want receipts to be cleared in Cash Management by automatic Clearing Program
- Select ‘By Matching’ if you want receipts to be cleared by manual reconciliation in Cash Management
- Provide Receipt Method name, printed name, and start date.
- An associate bank account that was created in Step 1
- Please Note: Make sure the start date is provided correctly as it is non-editable once you save. Receipts can be collected against this bank account before this start date.
- Provide appropriate GL accounts for receipt processing.
Step 3: Create Receipt Source
Receipt source is defined to provide receipt class, method, and bank account to default while receipt creation. It also determines the receipt numbering which can be manual or automatic.
For lockbox use, please select autonumbering.
Step 4: Define Lockbox
Go to Manage Lockbox and click on ‘+’ to create a new lockbox
Define lockbox as per the information provided by the bank. You can have multiple lockboxes created.
- Lockbox Number: Lockbox number is the unique number that your bank provides for your lockbox service.
- Receipt Source: Assign the receipt source that is created in Step 3.
- Bank Account Details: Provide bank account details for the lockbox
- Address: Address Details will get auto-populated if the address is stored in ‘Manage banks’.
- Bank Origination Number: Bank Origination Number is the unique number that your bank provides to identify the bank branch which sends you lockbox information.
- Accounting Flexfield: Cash Account gets defaulted from Receipt Method.
- Batch Size: Batch size is the maximum no. of receipts that can be created through one batch of lockbox receipts. If there are more receipts in lockbox file, it gets uploaded in multiple batches.
- Accounting Date Source: This field determines which GL date will be used when receipts are created using lockbox functionality. The available options are as follows:
- Constant Date: select this option if you want to use the date provided at the time of running auto lockbox program
- Deposit Date: select this option if you want to use the deposit date provided in the lockbox file as the GL date for the receipt
- Import Date: Select this option if you want import date of lockbox as the GL date of receipts
Match Receipt By: This option determines the application of receipts created through a lockbox.
The available options are as follows:
- Transaction Number: Reciepts to be applied as per transaction number
- Balance Forward Billing Number: Match receipts to Balance Forward Billing Number, if it is enabled.
- Sales Order Number: To match receipts using the sales order number. Here, Transaction numbers are identified by Sales Order numbers.
- Purchase Order Number: Transactions are identified by Purchase Order Number
- Contract Number: Match receipts using Revenue contract
- Shipping Reference: Match receipts using shipping reference
Automatch Rule Set: Assign the automatch rule set that is defined for the automatic application of receipts. AutoMatch Rule set contains criteria for customer identification and transaction identification. If the only matching threshold is met, receipts are applied to transactions.
Match on the corresponding date: This option governs if you want to match corresponding date for the transaction. The available choices are as follows:
- Always: Select this option if you want to ensure the date of the transaction is the same as the date on lockbox transmission
- Duplicates Only: This will check date only if there are duplicate records are found
- Never: don’t want to match dates.
AutoApply: Check this option if you want to auto apply receipts using AutoMatch Rulesets
Step 5: Transmission Formats for Lockbox:
Lockbox process uses this setup to identify how data is organized in the lockbox flat file. The flat file contains various types of records such Batch Header, Batch Trailer, Lockbox Header, Lockbox trailer, Overflow payment, Payment, Service Header, Transmission Header, Transmission Trailer. These fields are available in Import Receipts FBDI that Oracle provides. You can find this on https://docs.oracle.com
Oracle provides different seeded transmission formats. Following screenshot contains information on seeded transmission formats. Alternatively, you can use any one of them or decide to create a new one based on your requirement.
Step 6: AutoCash Rule Set
This rule determines the sequence that post receipt program uses to apply the receipt amount to the customer account open items. If no rule is triggered, the remaining amount is placed as ‘Unapplied’ or ‘On-Account’ depending on the option selected in the AutoCash Ruleset.
The available choices for rules are as follows:
- Match Payment with Invoice: Triggers when the remaining amount of open receivables is same as receipt amount
- Apply to the Oldest Invoice First: this rule applies receipt amount to the oldest open receivables of the customer
- Clear Past Due Invoices Grouped by Payment Terms: This groups past due invoices with their payment terms and uses the oldest transaction due date within the group to apply the receipt
- Clear the account: same as clear past due to invoices option, but it doesn’t group invoices by the payment terms.
Once the above configuration is complete, you are all set to submit lockbox processes.
Hemal Maniar is the certified Financial Consultant with the experience of 3+ years on Oracle Financials Cloud. He has experience of implementing difference financial modules and has been part of many end to end implementation and support projects.