Pros and Cons of Processing Payments with Lockboxes

There was a great discussion recently on the FUNDSVC discussion list (a list focused on the legal and tactical nuts and bolts of gift tracking) about lockboxes. A lockbox, usually provided by your bank, is a mailing address where donations by check or in the form of credit card transaction slips can go. The staff of the bank then immediately processes the money and sends you an electronic report as to who donated how much, possibly with copies or scans of actual checks or letters.

But, Laura...(you may be saying to yourself)...lockboxes aren't software, and usually you focus in on software with anal laser beam precision. Well, lockboxes are essentially an alternative option to software solutions. And truthfully, I didn't know that much about them, so I thought I'd pass on the great stuff I learned.

There's a number of advantages to lockboxes. The folks on the list mentioned:

• They can save staff time, compared to opening letters, getting checks to the bank, and data entering all the gifts.
• They're considerably better for security. Far fewer people touch the gift, so there's fewer places a gift can get lost or go awry.
• Checks are immediately processed and cashed - great for cash flow.

The advantages are straightforward and pretty compelling. But they have some downsides as well - more subtle but also very important - compared to receiving and processing all the gifts yourself:

• Costs can add up quickly. Many banks include only name and dollar amount in the data file, and you need to pay additional charges for other data or scans.
• You may well have to go back through each payment anyway to verify the legal donor, check to see if was a tribute gift, etc, etc - so you might not save that much staff time after all.
• You're relying on someone else to adequately pass on important information that might be included with the check - notes, letters, or other things. Some mentioned that their bank scans everything that's in the envelope, and they've never had a problem. Others are more skeptical, saying that those that who process the gifts are often evaluated on their speed rather than their accuracy. And it's you the donors will blame if you miss their question or concern.
• Checks are typically immediately cashed without careful proofing. For instance, if you receive checks that are actually intended for your national office, or that the donor has specified should be held before cashing, chances are that they'll be cashed anyway and you'll need to sort it out later.
• It can be challenging to get year end gifts from the bank in time at year end, especially for schools that close over winter break.
• The new address may have implications to donors. This is especially true for local, community based nonprofits. If the gifts are going to an address outside your service area, will donors question how community based you really are?
• It's not as satisfying to get a report as it is to handle the check and letter, which can affect the ability to get buy in from development staff.

Several mentioned that their transition to a lockbox was surprisingly seamless. They updated the address on all correspondence, which donors didn't seem to question, and didn't see any drop in donations.