What is a Remittance Processing System?

To better understand remittance processing, a review of the root word remit may be helpful. One definition of remit is to send money to a person or place. When money is sent in this fashion, it is often in response to an invoice for a service or product already delivered or rendered.

Remittance processing is then simply defined as the process of handling money, or a payment, that was sent or delivered to satisfy a debt or demand for a service rendered or a product received.

Put simply, when processed, a payment is received, credited through accounts receivable, and the funds are deposited in favor of the creditor or merchant.

A payment can be sent or remitted using several different methods. To remit, or to send a payment in the 20^th century, widely relied on the method of a paper check sent through the USPS mail services.

Payment methods have greatly expanded to include electronic payments, pay-by-phone applications, the automated clearing house network (ACH), credit and debit card transactions (both online and at a point of sale), the digital wallet, auto debits, etc.

How does remittance processing relate to lockbox and are they the same?

Remittance processing and lockbox differ in that remittance processing includes lockbox as a form of remittance processing but is not limited to lockbox as a solution. Lockbox, as a standalone, is a form of Remittance processing but is not all inclusive of such. The differences may become more clearly manifest by addressing the question of what is lockbox? To answer this question, considering the primary payment method used in the 20^th century (a paper check), and the remittance system widely used (delivery through the USPS mail system) may be instructive.

Remittance processing paper check deliverables are often sent to a designated USPS post office box or PO Box.

For retrieval of the received items, the PO Box requires access to the locked box using a key. Remittance deliverables utilizing a PO Box, or locked box, were categorized as lockbox processing given the receptacle being used is a locked box and remains a form of remittance processing. A quick combining of the two renders the term lockbox processing. This solution of remittance processing remains in use today and is especially popular as a method for business to business (B2B) relationships, while continuing to remain relevant as an employed solution in the business to consumer (B2C) market as well.

Lockbox as a form or solution of remittance processing in the B2B market commonly utilizes what is referenced as a wholesale lockbox.

The term wholesale lockbox attempts to identify the B2B relationship or remittance request as a wholesale transaction, though this is not always the case. What is commonly found and is often defined as a wholesale remittance, or transaction, is remittance that is inconsistent in its form, or in the contents of each envelope received. Therefore, the remittance processing lacks uniformity, and its consistency is frequently lost with the use of business checks as remittance. An additional disruption to efficiency in processing rests with the absence of a consistent bill or invoice being sent by the originating merchant and designed to be included in the return remittance envelope. The wholesale lockbox is commonly a lower monthly volume of checks or envelopes received for remittance processing through a single lockbox.

The B2C market widely uses a retail lockbox as a solution for remittance processing.

The term retail can be defined as the delivery of a product or service directly from a business to a consumer and often utilizes a consistent billing invoice, containing pertinent payment and account information, which is packaged and delivered in a manner that elicits a consistent, conforming deliverable into the remittance processing system.

The retail lockbox is commonly comprised of high-volume monthly payments that arrive to the lockbox in a uniform format making remittance processing more streamlined and efficient.

As an example, a retail remittance application, or lockbox would be a common solution for a utility provider.

Even in today’s market, lockbox processing and remittance processing are often used interchangeably. Perhaps in the past this exchange of terms was even more accurate as the paper check and remittance to a physical lockbox was the primary delivering system that dominated the remittance processing market. However, with the expansive and ongoing payment solutions that are continually introduced into the payment market, remittance processing has morphed into much more. Lockbox will continue to remain a staple of remittance processing for the foreseeable future. Nevertheless, remittance processing is not strictly beholden only to the solution of lockbox processing.