Meaning
Exclusive bank facility designed to receive customer payments for a borrower while keeping those funds physically separate from the general operating cash of the company. A segregated lockbox account serves as a control mechanism that allows a lender to capture revenue as soon as a buyer settles their outstanding invoice.
Cash Control
Funds arriving from accounts receivable sit in this protected space until the bank clears them and applies the balance against the outstanding loan amount. Using a segregated lockbox account prevents managers from spending revenue on payroll or utilities before they satisfy their mandatory daily debt obligations to the financial institution.
Account Monitoring
Auditors track every incoming electronic wire or physical check to reconcile the borrowing base levels with real time asset collections. Having a segregated lockbox account simplifies this monitoring process by removing the risk that sales proceeds might be accidentally co mingled with other corporate incomes.
Collateral Security
Lenders favor this setup during high volume production runs where daily cash flows can reach millions of dollars across multiple distribution hubs. Requiring a segregated lockbox account provides the bank with direct control over the collateral conversion process and reduces the chances of funds being diverted during a period of corporate distress. Direct collection builds lender confidence.
