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Making your business rubber-check proof

Rubber-check proofing your businessIf your company accepts checks, eventually, a rubber one will try to sneak through. Don't let it -- nothing tramples your bottom line more than a bouncing check.

"With $50 million in bad checks written every day, that's a lot of money -- and a big problem for businesses," says Steve Rhode, president, Myvesta.org, formerly Debt Counselors of America.

Bounced checks cost small businesses bad-check fees, plus the time and cost of collection. They can be an even bigger problem for smaller companies that do not have the healthy cash reserves or margins beefy enough to survive several bouts of checks gone bad.

"Small businesses, especially new small businesses, are so enthusiastic about receiving any money that they don't focus on the quality of the money that they are receiving," Rhode says. "It only takes a couple of bad transactions early on to sink their dream."

There are ways to protect your company, says Rhode, whose nonprofit organization works with debtors and the people they owe money to.

Here are some of the ways to reduce the rubber-check risk:

  • Don't accept checks, period.
    This is the most drastic action, but it will protect your company from ever receiving a bounced check. Of course, you know your business best, so you'll have to make the call whether this is a viable option. In order to satisfy your customers, you may have to accept some checks. For example, mail-order companies or retail stores may have to accept local checks to attract customers. But, for the lucky few companies that can pursue this option, it can prevent them from ever having to pay a bad check fee.

  • Accept only cashier's checks.
    A cashier's check offers the greatest protection to the recipient. "These can't be reversed, so it's money in the bank," Rhode says. The same goes for a wire transfer to your company's bank account. Many small-business owners believe that money orders are guaranteed; They are not. The same holds true for electronic fund transfers. "You can put a stop payment on them just as you would a check," Rhode says.
  • Use a check-verification bureau.
    The most common is the Houston-based TeleCheck Services Inc. Such services maintain databases of bad-check writers. They guarantee checks and will go after bad check writers. That's good, but there are a couple downsides. To begin with, it costs more to have a service verify and guarantee a check. In addition, you'll get what's owed, but you may lose a customer over a one-time mistake. "If a check bounces, TeleCheck will go after your customers very aggressively," Rhode says -- so aggressively that they may not want to do business with you afterward.

  • Watch out for low-numbered checks.
    Usually, a low number means a new account, perhaps one that was set up defraud businesses such as yours. The odds are increased that these low-numbered or starter checks are fraudulent. Of course, a low-numbered check is not inherently bad -- we all had to start our checking accounts sometime. But statistically, the incidence of bad checks rises with low check numbers. Myvesta.org estimates that nine out of 10 bad checks bear numbers from 101 to 499.

  • Scrutinize every check.
    Look for inconsistencies and things that just don't seem right. For example, personal checks with four smooth edges (no perforations) or shiny print jobs are worth a second look -- they may be counterfeits produced on a laser printer. Also, compare the series of numbers at the top and bottom of the check: The last three or four numbers of the Federal Reserve number at the top of the check (usually at the upper right) should match the first three or four numbers of the routing/transit number (usually on the lower left) Checks should also have the name of the bank and usually a location.

  • Post a bad-check policy.
    Warn your customers of the stiff penalties that await them should they write a check that bounces -- for example, a $50 processing fee plus the amount of the check. This is required by law, but can also serve as a deterrent to would-be bad check writers. The best protection against bad checks is to think through a policy before a rubber check comes bouncing your way, Rhode says. Figure out your company's procedures so you will be prepared and your employees will know what to do.

Jenny C. McCune is a contributing editor based in Montana

-- Posted: April 2, 2001

 

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