With a little additional effort, most credit managers can cut one to three days from their days sales outstanding (DSO by using their lockbox service more effectively. This process does not require sophisticated tools and techniques, and it costs almost nothing. What it does require is a combination of attention to detail and tenacity on the part of the credit department and accounts receivable group.

Most companies already use a lockbox service to expedite collection of the check-based trade payments they receive daily. Therefore, there is no need to elaborate on the fact that lockbox services reduce mail and processing float on incoming customer payments, which results in reduced DSO.

Unfortunately, a certain number of customers do not mail checks to your lockbox service. The reasons they do not correct your remittance address in their accounts payable system range from simple incompetence to a recognition that lockboxes reduce float - and that reducing float is good for the creditor and not good for the debtor paying its bills.

Customers that refuse to remit payments to your lockbox service typically send their payments directly to the credit department at the corporate headquarters. Most credit departments receive several "direct checks" per day. Often, these "direct" payments are sent month after month by the same group of customers. As soon as possible after receiving such a payment, the credit department should:

1. Notify the customer in writing they are sending payments to the wrong address - specifically your corporate address rather than to the lockbox remittance address.

2. Provide the customer with the correct lockbox remittance address.

3. Ask the customer to change the remittance address in their accounts payable system immediately.

4. Track subsequent payments to make sure future payments are mailed to the right address.

5. Call the customer's accounts payable to resolve the problem if subsequent payments are not sent to the lockbox as requested. If necessary, the credit department should be prepared to talk to a customer's CFO or controller to get the remittance address changed.

The five step process outlined above is not automated, or easy. It is labor intensive. It requires tenacity, good organization skills, and cooperation to develop a program that effectively addresses the problem of misdirected payments. However, I am convinced that the rewards far outweigh the time and cost associated with this process.