Lockbox Arrangement | MCA Glossary

Definition

A collection structure in which a business's customer payments are directed to a funder-controlled account before being forwarded to the business, giving the funder priority access to incoming revenue.

Explanation

A lockbox arrangement is a more intensive collection mechanism than standard split-funding or ACH withdrawal. In a lockbox structure, the MCA funder establishes a separate bank account (the lockbox) that is controlled by or accessible to the funder. The business redirects its incoming revenue — ACH payments, check deposits, or wire transfers — to the lockbox account. The funder then deducts its daily holdback and releases the remainder to the business's operating account. Lockbox arrangements are typically used in situations where card-split or standard ACH mechanisms are insufficient — for example, businesses that receive a significant portion of revenue through bank transfers, checks, or other non-card payment methods that cannot be intercepted at the processor level. They are also used for higher-advance amounts where the funder requires more control over collection. Lockbox structures give the funder greater visibility into and control over all incoming revenue streams. They are more restrictive than standard MCA repayment mechanisms and require more active management by the business.

Example

A medical billing company receiving insurance reimbursement payments via ACH uses a lockbox arrangement. All payer ACH deposits route to the lockbox account, the MCA funder deducts 12% of each deposit as it arrives, and the remaining 88% is transferred to the business's operating account within one business day.

Why It Matters

Lockbox arrangements require redirecting customer payments away from your primary operating account, which can create operational complexity and may alarm customers if the lockbox account name differs from your business name. Before accepting an MCA with a lockbox requirement, understand the operational implications and confirm that the lockbox bank's ACH processing timeline will not create delays in your access to working funds.

Frequently asked questions

Is a lockbox arrangement standard for MCA agreements?

No. Lockbox arrangements are less common than card-split or ACH mechanisms and are typically reserved for larger advance amounts, businesses with complex payment structures, or situations where standard collection mechanisms cannot capture all revenue streams. If your MCA agreement requires a lockbox arrangement, ask the funder to explain the rationale and understand exactly how the lockbox will affect your daily cash access before accepting.