Spoiler alert: Your Bank’s lockbox is giving you more work and costing more money than you realize

Why Bank lockboxes aren’t built for the complexities of Real Estate payments

The Challenge

Two people live in same unit with one marked “do not accept” because he’s moving out and the other renewing her lease. Check is rejected. Sponsor units with multiple checks and one coupon. Rejected. Payment submitted online through a bank without the tenant code. Rejected. Rejected. Rejected. Leveraging technology to reduce the cost of receivables processing has become a mandate in today’s business environment. Unfortunately, a Property Manager’s lockbox is likely resulting in the exact opposite.

Property Managers rely on banking services to quickly post paper checks to their accounts and, whenever possible, turn them into electronic deposits. Lockboxes evolved as a means for businesses to expedite their cash flow, reduce fraud, automate the flow of remittance data, and enable staff to take on more strategic responsibilities. However, unbeknownst to most Property Management firms, bank lockboxes cannot handle real estate payments because of the inherent exceptions, leading to delayed cash flow, manual processing, and excess costs.

Real Estate business rules are riddled with exceptions, and those exceptions vary across firms. Perhaps a Property Manager only allows checks from rent-stabilized units to be from the named tenant. Maybe roommates can pay more than half the total rent, and even pay up to a full year’s rent in advance. What occurs when there is one check but two coupons, or two coupons and one check? Is there a different code for lease type, court file, and lease expiration? Bank lockboxes are not equipped to understand and action the nuanced complexities of the industry, thereby rejecting any payment in question.

Rejected lockbox checks restarts the inefficient cycle of employees opening envelopes, coding receivables into accounting system, and walking payment to the bank. In the end, a firm is paying handsomely in resources and time for both a bank lockbox and a full AR staff to handle the large proportion of exceptions.

Case Study

A sophisticated New York City Property Management firm couldn’t gain efficiencies of scale – every time the firm purchased another multi family property, it was required to ramp up hiring in its AR and Legal departments to process the payments and manage delinquencies. Regardless of the number of units under management, the firm’s cost to process a single tenant’s payment remained stable and quite high.

To further complicate the situation, the firm’s portfolio ranged from luxury to rent-subsidized buildings and timely to delinquent, necessitating the application of different business rules to handle the portfolio’s payments. The wide range of scenarios created chaos for the AR team.

The Property Management firm thought they were operating efficiently because they maintained lockboxes with two different banks to collect paper checks and had scanners on site. However, due to the banks’ inabilities to accurately process real estate payments, the lockboxes rejected payments that were not immediately attributable to a tenant. One AR Executive tallied that she and her team processed 35,000 checks annually at their headquarters, and each check was touched by at least two people. While paying the banks hundreds of thousands of dollars a year to process payments through their lockboxes, the AR team ultimately was left to handle the payments themselves. Essentially, the firm’s supervision of business rules and preferences consumed any expected lockbox efficiencies. The AR Executive recognized that the expense of processing incremental payments was siphoning off profitability, and that a better process must exist. It was at that time she deeply understood ClickPay’s value. ClickPay’s best-in-class suite of products, including its lockbox built expressly for real estate, decreased call volume, eradicated checks sent to the office, and accelerated cash flow. Another top national Property Management firm experienced the same operational efficiencies by migrating from bank lockboxes to ClickPay’s lockbox. One of the firms AR Managers noted, “ClickPay goes through every single check and locates which account it belongs to, regardless of the information received. Now, my AR team will receive one or two emails each week from Click asking about an unknown check; it very rarely occurs. I also no longer have to be an ACH Customer Service Rep for our tenants – ClickPay handles all of that. Whenever a tenant, manager, or AR has any sort of issue or complication with their account, Click will easily assist them and resolve the issue. If they can’t right away, they will get back to the tenant promptly after researching the solution on the back end. This not only allowed AR to free up time from the daily calls, but also decreased the amount of calls to our Call Center by a great deal.”

The operational value that ClickPay creates for its clients directly improves their bottom line by allowing AR departments to realize the elusive efficiencies of scale.

The Solution

In a professional lockbox facility, checks are sorted into batches and rapid extracted from envelopes at the rate of thousands of checks a minute. Checks are then processed through large machines with the associated coupons and the images captured in real time. The software reads the checks and disburses the funds to the associated operating accounts. Bank lockbox functionality ends there. ClickPay’s lockbox is designed for real estate payments and thrives on the inherent business rules. Powered by the most technologically advanced software, ClickPay easily handles exceptions and special business rules, thereby drastically minimizing the number of rejected checks and wasted resources. Further, ClickPay’s lockbox can identify and remember checks that would otherwise become exceptions. When a check is unidentifiable to the software, ClickPay’s lockbox staff manually researches exceptions against the rent roll to find a match. For the very few checks ClickPay cannot process, its “Decisioning Engine for Exception Processing” is a web-based tool for Property Managers to review and accept or reject an exception from processing. Only a lockbox system intended for real estate is equipped to optimize payment processing, saving Property Management firms time and money.

In any service industry, companies must be efficient and tightly manage costs in order to be successful. While new technology is helping to meet such goals, unknowingly, bank lockboxes often result in the opposite effect due to their inability to manage the nuances of real estate payments. An educated Property Manager should take inventory of their banks’ lockbox systems and evaluate if the expected efficiency is truly realized.