Lock box-concentration banking system

A lock box-concentration banking system is a traditional method of reducing receivables float. A lock box is a post office box to which customers address their payments. A messenger from the company’s bank empties the box, often several times a day, and takes the checks to the bank where they are immediately deposited to the company’s account. A company doing business in many locations might use concentration banking to further speed up the availability of funds. It’s primary bank would set up lock boxes in several cities and employ local banks to remove and deposit the checks. Then the primary bank would “concentrate” the funds, transferring them electronically to a central account. The net effect is to reduce significantly the time “the check is in the mail.”

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