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Submitted by Chandra Wipro
Objective of this document is to explain the meaning, purpose, advantages and disadvantages of the lockbox. This document also explains various types of formats that can be used to process the lockbox data.
What is a lockbox?
Advantages of Lockbox:
Lockbox process has several advantages. Some of them can be illustrated as
What is BAI?
The standards for lockbox transmission files are defined by the Bank
Administration Institute (BAI). Founded in 1924, the BAI organization is a
partnership composed of its own BAI membership, a Board of Directors, various
banking industry advisory groups and a professional staff. The
organizational mission is “to help bank administrators achieve high levels of
professional effectiveness and to help solve significant banking problems.”
Activities include the definition of industry file formats, such as lockbox
transmissions. BAI and BAI2 are the two defined lockbox transmission
formats, however, BAI is considered ‘outdated’ by the BAI organization and
is no longer supported (ie. standards are no longer updated or improved).
Nonetheless, many banks still offer transmissions in the old BAI format.
BAI vs. BAI2?
BAI and BAI2 formats differ in their level of information detail. BAI
does not separate out the incoming check line items by invoice subtotal
reference. Instead, one check total amount simply has all invoices listed
underneath it. Thus, in BAI format files, the entire check amount must
match perfectly (or within configured payment difference tolerances) the total
amount for all invoices listed. Otherwise, the entire check will enter
into SAP as:
In these scenarios, your Accounts Receivable cash application clerks will
have to perform manual application to clear payments against open items on the
Conversely, BAI2 splits the check total into separate invoice references and
associated payment amounts. Thus, within a large batch, BAI2 format files
will allow a “Partially applied” status in which some identifiable payments
within the check total will be matched and cleared, others will land on account.
As a result, your ‘hit rate’ percentage of payment-invoice matching from
each transmission is likely to be higher when using BAI2 rather than BAI
Network transfer of structured electronic data from one computer application
to another using standard message formats. EDI is described as the
interchange of structured data according to agreed message standards between
computer systems by electronic means. This standard format is nothing but a Set
of rules, agreed upon, accepted, and voluntarily adhered to, by which data is
structured into message formats for exchange of business and operational
information. Lockbox related formats are Edi 820 and 823.
The 820 Payment Order/Remittance Advice transactions can be used to make a
payment, send a remittance advice, or make a payment and send a remittance
advice. The 820 transaction can be an order to a financial institution to
make a payment to a payee. It can also be a remittance advice identifying the
detail needed to perform cash application to the payee’s accounts receivable
system. The remittance advice can go directly from payer to payee, through a
financial institution, or through a third party agent.
The 823 Lockbox formats are sent by bank as confirmation of payments received
from customers of lockbox owner. EDI 823 format contains information like Bank
details of lockbox service provider, total quantity of checks in each
format transmission, total amount involved in total checks, number of batch
involved ( batch represents maximum quantity of checks in each lot). Further
break up like, customer name, customer bank routing number, customer bank
account number, check number and amount, number of invoices paid, amount
per invoice, discounts for each invoice, deductions if any involved and credit
Information available in these formats are generally used for clearing
customer open items in SAP depends upon the business requirement.
Following EDI configuration is required to read the data from corresponding
format and process customer open items.
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