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Bank lockboxes become high-tech.

Editor's note: Bank-operated lockbox systems for residential rent collection are nothing new. When tenants mail rent checks directly to a bank post office box, checks can be credited faster, and money can draw interest sooner However, the need to re-enter cash receipts at the management office and the increased danger of data-entry errors has long made the use of a traditional lockbox system a mixed blessing.

To eliminate the need for double-data entry, vendors of property management accounting software are now beginning to offer programs designed to receive and integrate electronically transmitted cash receipts into an existing property management accounting program. This case study describes the implementation of one such system, LockBox Interface, produced by the Softa Group, Inc. and used by Equity Management, a small fee management firm in southwest Riverside County, California.


Equity Management is a four-person, family-run firm with offices in Temecula, California. We specialize in association management, both residential and industrial/office parks. We currently have about 26 residential and three commercial properties under management.

We began computerizing our operation about one year ago, using Skyline from the Softa Group. We use modules of general ledger, accounts payable, and accounts receivable. However, with the large number of associations in our portfolio, our rental billings include a significant number of variable charges for such items as common area maintenance and landscaping. In an average month, we bill as many as 1,500 unit owners-some monthly billings, some quarterly, and some annual.

With this much paperwork in a small office, most of it taking place during the first 10 days of the month, we found that the burden on our employees was tremendous. When we switched over to a conventional lockbox system, our receipts were credited more quickly, but we still had to duplicate work done by the bank.

During the first part of the month, we spent virtually all our time re-entering payment information from written reports received from the bank. This re-entry was essential if we were to use our property management software for other functions, such as late notices, that required receivables information.

We also faced an unacceptable number of errors in the entry of our cash receipts. At the same time, because this intensive data entry was limited to only the first part of the month, none of the people were full-time data entry operators. As a result, our employees were probably slower and less accurate than someone who did the work every day. Yet, cash management controls made it necessary to do the billing and receipt entry in as few days as possible. We began to look for another solution.

It was at this point that the Torry Pines Bank in neighboring Solana Beach, California, came into the picture. We were looking for an innovative solution to our receivables; the bank was looking for new customers and new services that would attract them. The bank already had a traditional lockbox system for its real estate customers, but felt that a new electronic system might give it a competitive edge.

After some discussion, the bank agreed to purchase software that would enable us, and their other customers, to receive information on rent and CAM payments electronically. The software selected was a new program called LockBox Interface, which we selected to integrate with our other property management accounting programs.

The interface imports our cash receipts information from a file sent by the bank and applies it to the correct unit owner account in the system. We can review the posting on a report generated by the interface.

The bank purchased a telephone modem and communications software, which allowed them to transfer the payment information to us, as well as to other bank customers.


Once the decision was made to computerize lockbox operations, the implementation was scheduled to take place four months later, following several phases of testing.

The mechanics of the outgoing billings were established first. The bank rented a post office box to receive all payments from our customers. Our company continued to bill its owners with a preprinted, multi-part bill generated by our accounts receivable software. The bill contained a receipt for the owner and a payment coupon coded with information identifying the property and the account number for the bank.

Currently, the bank's data entry staff keys the check amount and payment information manually from a coupon into its computer. The bank also has the capacity to process MICR-encoded receipts, although Equity did not choose to use electronically coded coupons.

MICR-encoded information can be captured up to 100 times faster than manual receipts, but there is a long start-up time needed to set up the machine. Therefore, a volume of approximately 250 checks is needed on each day to justify the cost of an MICR-encoded system. A regular lockbox system requires only about 200 payments a month to be price beneficial.

Implementing the software and communications links was the next major step. The bank incorporated a menu-driven telecommunications set-up into the communications software and installed it on a dedicated microcomputer at the bank.

The bank's Data Processing Department, headed by Vice President Gary Devan, spent two weeks developing a link between the LockBox software and the bank's mainframes. This terminal program enabled the bank to enter payments to its own programs and then automatically download data to a microcomputer According to Softa, the amount of time a bank needs to prepare programs necessary for the interface will vary, depending on the types of computerized operations they already have.

Our company also installed the LockBox interface and a telecommunications program on its in-house microcomputer, which was already equipped with the Softa property management program, Skyline. The telecommunications program allows us to receive and send data to the bank by modem. It is also possible to receive cash receipt information on diskette.

The management company had been using the property management program for approximately one year before adding the lockbox feature. Because the two programs were from the same manufacturer, they use similar menus and prompts, the learning curve for our employees was minimal. Indeed, except for setup, the LockBox program is almost invisible.

(While Softa's LockBox program is designed to run with its own property management accounting software, Devan feels that the bank will be able to adapt the LockBox program to accommodate links with management companies using other accounting software.)

The software was then tested over a three-to-four-week period with the assistance of Steve Holton of Executive Management Consultants, a Skyline distributor in our area. Initial testing was done by entering data into the bank's microcomputer and manually checking the output.

In the next testing phase, data input at the bank was copied onto a floppy disk, transferred manually to our computer, and tested on-screen and through output.

One or two minor communications problems arose. For example, one of the ongoing problems is the legibility of our payment coupons. The bank operators have some difficulty reading our resident account numbers from the coupons. As a result, some payments have been posted to the wrong accounts. A minor change was also made to make the check number a mandatory, rather than an optional, field. The bank and the management company found the check number very useful in identifying the sender if a check is returned.

The third and final test phase used the modem and the telecommunications menu to transmit actual data from the bank to our offices. Again, output was tested for errors and found to be clean. The management ran dummy accounts on the system for two days, and then decided to go live. Just five months after initial selection, the system was operational.

Other enhancements

Equity is now testing the benefits of another payment option that will work with the LockBox interface-automatic withdrawal of monthly assessment payments, This program has several benefits for both management and unit owners. Owners save on postage and bank charges by eliminating the need to write a check.

Likewise, the management company saves on staff time, supplies, and postage needed to generate owner billings. In the long run, these savings are passed on to unit owners in lower management costs.

The bank also saves staff time in posting receipts. Perhaps most importantly, because all monies are transferred on the first day of the month, payments are available and earning interest by the second.

At present, the automatic debit program is being tried at only one residential association, and members are being given the option of whether or not to participate. The management company sent a letter to all unit owners, explaining the process and asking permission to debit the owner's account for the monthly assessment. At present, approximately 60 percent of the members are using the automatic system. If the program continues to be successful, we hope to expand it to our other residential properties where payments remain fixed every month.


From our firm's point of view, the greatest benefit has been the savings in staff time achieved by eliminating the re-entry of receipts. The staff spends approximately two-thirds less time working on accounting functions than before the LockBox program was added.

The actual downloading of data from the bank is performed daily in only a few minutes. Every morning at 9:00 a.m., our operator uses only two or three keystrokes to implement the built-in dial-up service and receive the previous day's receipts. The daily average of 130 payments is usually received by 9:10 a.m.

The management company uses the payment receipts, which are saved and sent by mail from the bank, to perform an error check on the receivables. (Of course, the bank also compares the receipt and the actual check before entering the payment.)

With electronic transfer of data, the opportunity for errors has been reduced by 50 percent, as each receipt is input only once. And because the bank's data entry people process checks all day, every day, they are probably more efficient than our in-house people for whom it is one of many jobs. In the over 400 payments reports received in the first two weeks of operation, only six payments were applied to the incorrect account.

For Equity and its clients, the greatest benefit of electronically transmitted owner payments has been the greater processing efficiencies and more available staff time to service other association needs. The company has taken on two additional association accounts since implementing the LockBox system without the need to expand its staff. The fee of $.25 per payment charged by the bank is small in comparison to savings in salaries.

Tighter monetary controls, fewer entry errors, and more time for association member service have all been achieved by adding the component of computerization to the traditional lockbox services available.
COPYRIGHT 1990 National Association of Realtors
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Title Annotation:JPM Computers; Software Review
Author:Olhasso, John B.
Publication:Journal of Property Management
Article Type:evaluation
Date:May 1, 1990
Previous Article:Interview with Dan Ward: first on line.
Next Article:The management of time-sharing units.

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