A lockbox service can protect your practice's cash

Question: Our office manager wants to obtain a lockbox at the bank to expedite deposits. However, based on the proposals we have received, this seems like an expensive proposition. How can we justify this expense? Are there other alternatives?

Answer: Your office manager is absolutely right about getting a lockbox for your practice. It not only expedites cash flow, it also may reduce personnel expenses. Most importantly, it greatly minimizes the potential for theft.

In this reference, a lockbox is not a physical thing. Obtaining a lockbox at a bank means that your receivables are mailed directly to a designated post office box. The bank picks up those receivables and deposits them into your account.

Then it informs you of changes in your account. Various banks charge various fees, often based on the number of transactions, and sell their services based on your reduced expense of processing receivables.

The first thing to consider is the time it normally takes for a check to get into your bank account after it is received.

Day 1, the check arrives at the office. Then it is opened, endorsed and placed with a deposit batch.

Day 2, the check is deposited.

If the deposit is made in the morning, then the money should be in your account that day. If it's made in the late afternoon, the money may not be in your account until Day 3.

When using a lockbox, the entire deposit transaction takes place in one day. The practice gets money into its account one to two days earlier. And if the bank offers even a small amount of interest on the account, then more money is earned.

You will need to determine the costs associated with having a staff member open, endorse and copy checks, prepare deposits, and distribute checks every day. Depending on the number of checks that arrive in the mail, this could take as many as three to four hours per day.

The question to ask is: Could this person be doing something else to support revenue generation, instead of clerical tasks? Is this person, or someone else, responsible for taking deposits to the bank? Is it on company time? If so, how much time does that take?

Many physicians and office managers are surprised when they look at the total time involved in receiving, preparing and depositing checks that arrive in the mail. By calculating the salary and benefit expenses associated with this process, adding any additional revenue that would be generated if that person were performing different tasks, and subtracting the lockbox expense, you may find that the practice would break even or even improve profitability by investing in a lockbox.

The use of a lockbox ranks high on the internal control "must do" procedure list. In fact, many experts say that the only reason a practice needs to have a lockbox is to guarantee that no one in the office can embezzle funds.

Whenever staff members handle money, there is a chance that it may disappear, either by accident or on purpose. Sound internal control procedures include segregation of duties, so that more than one person is involved in the process of handling money.

Often this is not feasible, especially with smaller practices that lack sufficient staff. In this case, the lockbox takes the place of an employee and eliminates the possibility that funds will be misappropriated.

It is important to remember that lockbox quotes may be negotiable. The quotes are based on factors that include your average daily account balance and number of transactions.

One thing to consider is electronic transactions. Medicare now requires electronic funds transfer, and private insurance companies are following its lead. And patients, for their part, increasingly pay by credit card or send money directly from their checking accounts.

This trend will decrease the number of transactions, while maintaining the same average account balance -- which, in turn, should reduce the monthly lockbox fee.

Delivery expenses associated with moving the lockbox contents from the bank to the office also may be adjusted based on whether the packets are delivered via courier or mail, and how often they are delivered.

Finally, some quotes include such features as online transmission of checks and associated explanations of benefits. While nice to have, they often are an additional expense that does not necessarily make sense to include.

Banks often will recommend that lockbox activity and the practice's account be reviewed after six months to see if adjustments are needed.

As an alternative, some banks have introduced office-based devices that provide expedited deposits, which also is one of the major advantages of having a lockbox.

When checks arrive at the office, they are scanned into a device that is connected to the bank. The checks are approved immediately, and funds are transferred into the account.

While this process still requires a live person to do the work. it also saves time because no one has to copy checks and take deposits to the bank.

This option does not, however, eliminate the risk for embezzlement. Thus, procedures must be in place to address that issue.

A lockbox may seem to be just an extra expense with a questionable return on investment. Further analysis typically shows it is an investment that physicians cannot afford not to make, for the future profitability of the practice.