A lock box agreement is a service offered by banks to companies in which the company receives payments by mail to a post office box and the bank picks up the payments several times a day, deposits them into the company's account, and notifies the company of the deposit. This enables the company to put the money to work as soon as it's received, but the amounts must be large in order for the value obtained to exceed the cost of the service.
This lock box agreement is to be used by the collateral agent for a syndicate of banks to receive, control and apply to the Borrower's line of credit, payments made on the debtor's accounts receivable collateral. This agreement when executed, perfects the secured party's security interest in funds in the lock box account by control under Uniform Commercial Code § 9-104(a)(3) by making the agent bank the owner of and party in whose name the account is held. Because the account is controlled by ownership in the name of the secured party, the lock box bank cannot offset claims it has against the debtor against the account as provided in Uniform Commercial Code § 9-340(c). To avoid any doubt on this issue, the lock box bank expressly waives its rights of setoff. On the other hand, the agent bank agrees to indemnify the lock box bank for any unpaid fees or claims concerning the account, in the event the debtor fails to do so.
This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.
The New York Lock Box Agreement is a cash management system that allows lenders to have greater control over the funds collected from the borrower's receivables. This agreement is commonly employed in commercial lending transactions and serves as a mechanism to secure repayment of loans. Under the New York Lock Box Agreement, the borrower establishes a separate bank account, often referred to as the "lock box account," typically held in a New York financial institution. This account is specifically designated to receive the borrower's incoming cash receipts, such as customer payments, sales proceeds, or revenue generated from the borrower's business operations. The primary purpose of the New York Lock Box Agreement is to allocate and manage the cash inflows in a way that prioritizes the lender's interests. The borrower authorizes the diversion of all incoming cash receipts directly into the lock box account, bypassing the borrower's general operating accounts. This arrangement ensures that the lender gains immediate access to the funds and reduces the borrower's control over its cash flow. The New York Lock Box Agreement enhances the lender's ability to monitor and control the borrower's finances. By maintaining control over the cash inflows, the lender can ensure prompt loan repayment, minimize the risk of defaults or delinquencies, and protect its financial interests. This system is especially beneficial in situations where the borrower's financial stability or creditworthiness is a concern. Different types of New York Lock Box Agreements can vary based on the specific terms and conditions negotiated between the lender and borrower. For instance, a Single-Signatory Lock Box Agreement grants the lender sole control over the lock box account and complete authority to manage and direct the cash inflows as per the terms outlined in the agreement. On the other hand, a Dual-Signatory Lock Box Agreement requires both the lender and the borrower to provide their consent and authorization for any fund transfers or disbursements from the lock box account. This type of agreement ensures that both parties have a say in managing the cash inflows and aims to maintain a balance of control between the lender and borrower. In summary, the New York Lock Box Agreement as a cash management system with lenders is a crucial tool in commercial lending transactions. It establishes a specific bank account to collect the borrower's cash receipts, giving the lender more control over the borrower's cash flow. Different types of agreements, such as Single-Signatory and Dual-Signatory, can further determine the extent of control and authority exercised by each party involved.
