Banks have caught on to the value-added product they can sell to treasurers across both the size and industry spectrums, and treasurers are quickly catching onto the potential for substantial efficiency savings. "It's a major paradigm shift," declares Andrew Sandiford, head of U.S. dollar check products for Deutsche Bank. "A treasurer can now log on and see what's happening in any lockbox anywhere."

But the advantages go beyond real-time information and saving time on data entry, according to Steve Stone, director of product management at PNC Bank in Pittsburgh.

• Banks can now regroup lockbox receipts to suit the way a corporation wants to receive them. Data can arrive presorted by sales territory, by dollar amount or by remitter name, Stone explains. Items with attached correspondence can be culled out into a separate virtual batch. Before, "order in was order out" and treasuries had to "pull apart the lockbox package [from the bank] to find what they really needed," he notes.
• With better indexing and sorting capability, corporations can also filter out just that data that they need for transmission at peak load time and then arrange to get the rest later. This means that image files are less immense and download faster.
• Banks no longer have to attend to their biggest clients first, thanks to electronic "pipes" that make the process faster and more democratic.
• Although companies using lockboxes try to channel all incoming payments and remittance documents to the bank, they still get checks sent to their home office or handed to a salesman. Thanks to digital imaging, companies can now scan and e-mail the images to the lockbox immediately rather than waiting for next-day delivery. Obviously, it's faster and cheaper, Stone says.

It's a Match

Of course, one of the biggest advantages of the digital lockbox is improved accuracy. When banks key data, they typically do it twice for verification. If the two entries match, they're probably right. That improves quality, but takes time. In the new lockbox operation, receiving companies send open A/R files to the bank. If a keyed invoice number and payment amount exactly match an item in the file, there is no need to rekey. Such matching could be a step toward more ambitious cash-application outsourcing: If the bank finds a match, it posts the payment to the A/R file and sends back a posted file to the company. But for now, matching streamlines the data capture process when keying is required. PNC is testing this service now with its first customer, a Fortune 50 firm known for its technology savvy.

Treasurers not only recognize the possibilities, but they have already begun to demand sophisticated imaging and will even switch to get it. "It has meant a significant gain in our productivity," testifies Jim O'Halloran, director of global operation services at General Electric Co. "We can go directly to the image we need instead of sorting through paper. We can get a daily transmission of images of exception items from which the bank, for one reason or another, could not capture data."

In particular, online access has proved invaluable for GE and other companies with substantial operations overseas, according to O'Halloran, who oversees the corporation's more than 150 lockboxes at three banks. Much of GE's cash application is done offshore under outsourcing contracts, O'Halloran explains, so Web-based access to lockbox images has allowed collectors anywhere in the world to log on and confirm a payment was received and then release orders on hold.

Some banks even provide Web or pager alerts to notify treasurers when a certain type of payment arrives. Last December, JPMorgan Treasury Services introduced a proactive notification feature that instructs the bank to alert a treasurer when, say, a check over $1 million hits the company's lockbox, explains David D'Silva, senior vice president and global receivables executive at JPMorgan. "They set the parameters, and when a check that matches those criteria comes down the transport, it kicks out and generates the message," he explains. "It saves them from having to check the Web site every hour or two to see if something they're looking for has come in."

The rewards of high-tech lockbox don't go exclusively to large corporations using leading-edge applications either. For example, the Movado Group Inc., a watch vendor based in Paramus, N.J., is only in the first phase of its three-phase lockbox revolution, and already it has cut the job of cash application from 32 staff hours a day to a 12-hour job. It also has sliced more than a day off its DSO (days sales outstanding) and dramatically reduced calls from customers now that it can offer better customer service, reports Joseph Bosch, manager of treasury operations.

Not Just For the Big Guy

One big advantage: Movado's staff can now log onto a JPMorgan Web site and see transactions within a few hours after they are processed. Movado still does all the data capture and posting manually, but that could change with Phase Two, which will consider direct image transmissions and on-site image archives, and Phase Three, which will look at automated data capture options, Bosch says. The company has also eliminated the cost of daily FedEx packages and replaced boxes of stored documents with short stacks of CDs. The only minor downside: Movado's staff sometimes has to page past (and pay for) the image of a smudged piece of blank paper that indiscriminate imaging has reproduced.

However, digital imaging and data capture are probably most cost effective for paper-intensive industries, such as health care. But it also tends to take extensive customization. "We couldn't do much with a generic solution," says Health Net's Lu. "We needed a bank that would develop something specific to health care."

B of A was more than willing to accommodate. "Since HIPAA (Health Insurance Portability and Accountability Act), there's been a huge opportunity for lockbox providers to create value," says Pete Wheeler, senior vice president and receipts product manager for Bank of America's global treasury services.

For Health Net, it meant building a template to capture automatically the full EOB record. "Before, it was cost-prohibitive to try to capture so much data; now it is not," Wheeler says. Because full color images take so much storage space and transmission time, B of A has developed a black and white application for the EOBs, he adds.

Potential upfront costs aside, bankers claim treasurers are voting with their feet for image lockbox. "It's the first product we've seen in years," says Bank One's Hinton, "that sells itself."

—————–

ARCHIVES FROM THE CUTTING EDGE

One of the most obvious benefits of lockbox digital imaging is the archive that results. Instead of boxes of bulky paper that often have to be stored offsite, lockbox customers can use the bank as an archive or get the bank to transmit or export on CDs the images that will be kept in a corporate archive. It's compact. And instead of rummaging through lots of paper to find an item in question, you can type in a key word or number and see the image pop up on your screen in seconds.

But while most companies are still debating the competing virtues of bank archives versus corporate storage, corporate trendsetters are already demanding the next big thing in lockbox archiving: They want the banks to provide payment data that has been or can be merged with nonpayment data. This can be accomplished for a corporate client either by the company sending a bank the nonpayment data and allowing it to host an integrated image archive on its Web site, or by the client having the bank provide images in a format–and with the kind of indexing–that will fit smoothly into the company's image archive.

Putting the images in the customer's chosen format is not hard since there are a limited number of image output options: JPEG, TIF, CCITT or even PDF. But indexing the lockbox archive so that it dovetails with the indexing of a corporate image archive often means work and expense, according to Steve Stone, director of product management at PNC Bank in Pittsburgh. "Our high-end clients are starting to ask if we can provide images that will interface with their chosen image archive," Stone says, "and the answer usually is yes, but it will take some custom coding."

Another significant trend in the past 12 months has been for sophisticated companies with their own FileNet or similar systems to request data transmissions directly to that system three or four times a day, where they can move and store their lockbox data as they desire. Since the bank never stores images in its own archive for FileNet users, these customers will pay less. Some companies also use FileNet or similar products for intermediate archives, where documents can be corrected before they're ready for permanent storage.

Lanier Worldwide Inc., a business equipment leasing company based in Atlanta, is among those on the cutting edge of both image archiving and lockbox imaging in general. Each day Lanier must process a ton of incoming remittance documents and relatively small payments from companies leasing their copiers or scanning equipment. To handle the flow, reports Carole Heath, cash application manager, the company uses several wholesale and retail lockboxes operated by Wachovia Bank. For the largest wholesale lockbox (97% of Lanier's payments), Lanier buys data capture and transmission from Wachovia, she explains. From that transmission, Lanier gets a 92% hit rate–that is, matches of an open receivable and payment. Those files are then delivered to Lanier through FTP (file transfer protocol).

That's high-tech enough for most companies, but Lanier and Wachovia are going one step further in Lanier's archiving. Beginning in April, Wachovia now feeds those files into designated file folders, maintained by high-tech image storage provider Anacomp Inc., that correspond to how Lanier wants to use the data.

With the images going to the right file folders, it's a smoother process and makes it easier for Lanier employees across the organization to access the images, observes Brad Mallow, Wachovia's senior vice president for treasury sales, who calls it the "Mercedes-Benz" of archives. "You can really narrow the search criteria and go straight to a single check or invoice," he says.

For its other clients, Wachovia keeps lockbox images accessible in a 90-day archive. It then socks them away for seven years in less accessible storage, although it is considering offering a long-term accessible archive that will not compete with San Diego-based Anacomp's sophisticated file-folder approach. "Anacomp is a strategic alliance for us," says Mallow. "We think it's better to partner with specialized providers rather than try to do it all ourselves."