Making your business rubber-check
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
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
- Don't accept checks,
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
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,"
- Use a check-verification
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
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