How to Handle Bounced Checks
by Larry Slusser on April 8th, 2008
In the information age your company can have added protection against bad check writers besides just putting up a sign saying how much you would charge in case of a returned check. You might not be aware of the fact that in some states it isn’t even legal for your company to charge for a returned check.
While writing checks that bounce is illegal it is unlikely the police will be arresting your bad check writer unless they are a habitual offender. So how are you supposed to collect if you deposit a check in the bank that is returned to you and labeled Non sufficient funds?
The key to collecting on NSF checks is to catch the bad check writers before the check gets accepted into your accounting system. While it is possible for you to collect your money through small claims court, the time you will have to spend going to small claims court then enforcing your award and collecting on it can be worth more than the check was worth in the first place.
A better option than small claims court is to ask your credit card processing company, or any credit card processing company, about their checking service programs which will allow you access to a national bank checking database. In doing this, you will be able to know virtually right away if the check is good or if you will be stuck paying the bill.
All you or your employees have to do is put the check into the scanner and you will be advised if the individual has a history of bouncing checks. If the scanner approves the check then the service will guarantee the money it is written for. Even if the check bounces, the servicing company will stand behind the check you deposit.
Some companies actually put a hold on the funds the check has committed. What this means to you is that your company doesn’t have to rush down to the bank every night to get the checks deposited in a certain amount of time. Many companies guarantee the check even if the writer puts a stop payment on the check for some reason.
A general rule of thumb is that you will pay two percent of the check amount for the screening service and access to the database, along with other services provided. There are many different options available to you for your check screening, so make sure that you do your homework and cost out the different choices available to your company.
While it may not seem like the service may be worth two percent of your check receivables, particularly when you count in the time you will need to spend chasing bad checks, the two percent cost is well worth it. The other option really is to take your chances with checks that may or may not have sufficient funds. The chances are you can get an add on package through your current credit card provider that will cover checks and the fee will wind up being less than 2%.