Making the Right Choice for Processing Offline Gifts: In-House or Lockbox/Caging?

By James Cowen, CEO of Aqubanc

Processing offline gifts is a crucial aspect of fundraising for many organizations. The decision to handle it in-house or outsource it to a Lockbox/Caging operation can have significant implications.

Nonprofits rely heavily on donations, especially those made offline. While online donations have become the norm in recent years, there are still many donors who prefer to give offline. Processing these gifts can be time-consuming and often requires extra resources. For this reason, many nonprofits turn to Lockbox/Caging operations to help process their offline gifts. However, this approach, though beneficial in many ways, is not without its downsides.

The Fallacy of Lockbox and Caging Operations

The fallacy of lockbox and caging is that most people think it will save them time and that it is a cheap route. Well, that is only true in certain rare cases. The reality is that it ends up being more time-consuming on the back-end because you have to check for others’ mistakes. When using a Lockbox/Caging operation, the nonprofit will send its donations to a third-party vendor who will then process the donations on behalf of the nonprofit. The idea is that this will save the nonprofit time and resources. However, in many cases, the opposite is true.

Lockbox/Caging Benefits & Downsides

When using a Lockbox/Caging operation, the nonprofit loses certain levels of control. While the vendor will process the donations, they may not have the same level of attention to detail as an in-house team would. This can lead to mistakes in processing, which can delay the donation acknowledgment process and potentially harm donor relationships. Another downside of using a lockbox or caging operation is that it can be more expensive in the long run. While routine per donation transactions costs may look to be low, transactions requiring additional data entry and verification will quickly escalate costs. No matter the type of donation transaction, the nonprofit will be charged a fee for each donation that is processed. This can add up over time and may end up costing significantly more. In addition, is the nonprofit willing to forego in-house staff to review donations processed by Lockbox/Caging by trusting the accuracy prior to posting into the nonprofit’s CRM.

In-House Processing: Benefits & Downsides

Processing offline gifts in-house means that the organization handles all aspects of receiving and processing donations. There are two avenues with this approach: Manual and System. Manual is typical of how most nonprofits open and sort mail, deposit checks and manage data entry in their CRM, then send acknowledgments. Manual typically is labor intensive with layers of duplicate oversight. System takes the best of manual and jettisons the rest: For example where previous sorting may be by Campaign to ease subsequent data entry. System sorts all mail by physical type for check with donation slip, check only, and solicitation slip only. System images all donations which eliminates copying and posts directly into nonprofit’s CRM. Both Manual and System offer greater control, while System reduces the in-house staff needed to process donations without any loss in accuracy. Both Manual and System provide better opportunities for personalized communications and interactions with donors. System leases result in significant savings and happier staff when staff is willing to embrace the System changes.

Handling Exceptions

Regardless of the approach chosen, it’s essential to have clear protocols in place for handling exceptions and errors in gift processing. Lockbox/Caging will charge for any donation that is anywhere outside the norm, and these fees will add up quickly. Manual can handle exceptions immediately, while System will have a procedure for handling exceptions.

Handling Errors

When an error is made by the Lockbox/Caging, the nonprofit is still charged for this error! And the error may be discovered during the review of Lockbox/Caging’s work prior to posting into the CRM. Or if not reviewed, it may be discovered by the donor. When an error is made In-House, the In-House staff can find it immediately and correct it before it is posted into the CRM.

Regular Evaluation and Adjustment

Organizations must regularly evaluate and adjust gift processing procedures to identify areas for improvement. This can involve analyzing data, soliciting feedback, and keeping up-to-date with best practices and technological advancements.

Options for Nonprofits

Processing offline gifts in-house manually does require more resources, however, an in-house System will significantly reduce and reallocate resources to other areas in need within the nonprofit. Lockbox/Caging may reduce some resources, but will still need resources to review donations processed by Lockbox/Caging prior to posting into the CRM.

Case Study: Offline Giving and Love A Child

Love A Child used a bank’s lockbox for years until they began to receive inquiries from donors about their acknowledgements: I gave $50 but my donation shows only $5! Love A Child found they were losing $4000/month in cash donations. Love A Child acquired a System in 2007 and when a hurricane knocked out their orphanage in Haiti, the System handled the nearly double onslaught of donations without needing to add more staff.

Case Study: Offline Giving and Allentown Rescue Mission

Allentown Rescue Mission was processing offline gifts manually. Allentown Rescue Mission investigated System versus Lockbox/Caging. The lowest “all-in” pricing they found for Lockbox/Caging was $3.00 per transaction plus they’d need to keep 1 FTE to review Lockbox/Caging transaction and then manually process exceptions. Allentown Rescue Mission went with a System and the single person to handle all their 30,000 offline gifts annually.

Conclusion

In conclusion, processing offline gifts in-house manually or with a System versus using a Lockbox/Caging operation is a decision that nonprofits must make. Organizations must carefully evaluate the pros and cons. They must have clear protocols in place for handling exceptions and errors, well-defined roles and responsibilities, and regularly evaluate and adjust gift processing procedures.

While the idea of outsourcing the processing may seem like a time-saver, it can be more time-consuming on the back end. Nonprofits that choose to process gifts in-house will have more control over the process, can tailor their acknowledgment messages to donors, and will end up saving money with an in-house System.