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Check Warranty and Check Acceptance Policies

Q: I'm opening a business and want to know what kind of check policy I should have. If someone bounces a check, do I lose the money? How can I protect myself against fraud and returned checks? How does accepting checks over the Internet differ from accepting paper checks? Do the same rules apply?

A: You are very smart to want to accept checks safely. Offering your customers a variety of payment options increases sales and captures impulse purchases. And American consumers love to write checks. In fact, checks are customers' preferred method of payment when they make a purchase, and checks accounted for 73% of all noncash transactions in 2000, according to the Federal Reserve. This is a convenient payment option for your customers, but can be a challenge if the check bounces. To help prevent returned checks, follow these fraud-prevention tips from experts such as the National Crime Prevention Council, the National Check Fraud Center and Bankrate.com:

Always ask to see the check writer's driver's license or identification card. Compare the signature and the address on the card with the information on the check. A photo ID is even better.

Ask the purchaser to sign the check in your presence and compare it with the signature on the identification.

Accepting check cards, such as MasterCard's Master Money Card and the Visa Check Card, may actually be safer than taking paper checks. A check card is an instantaneous debit from the purchaser's bank account, while paper checks can take up to 14 days to clear. In addition, the billing address on the check card can be verified with the Address Verification Service, the same system used to verify addresses for credit cards.

Watch for checks with low numbers. Nine out of 10 bad checks bear numbers from 101 to 499, which usually indicates a new account.

Look for apparent alterations in the check (e.g., changes in the handwriting, water spots, color or background picture). This could mean it's a forgery.

Don't accept pre-dated or post-dated checks. The funds may not be available in the account when you try to deposit it.

Compare the last three or four digits of the Federal Reserve number in the right-hand corner of the check with the first three or four digits of the routing and transit numbers on the bottom left of the check. They should match.

Establish a waiting period for refunds. Make certain your customer's check clears before refunding the money.

Warranty Your Money
Checks are most frequently returned for nonsufficient funds or closed bank accounts. If you accept checks as payment for goods and or services, and you want to ensure that you receive your funds, you may want to contract with a check guarantee service. If your credit card processor is a one-stop-shop transaction processing company, signing up for check guarantee services is as simple as checking off a box on your merchant application. When you have a check warranty service, you run your customer's check through your point-of-sale terminal, which connects directly to the check warranty service. The service reviews its database of good and bad check writers, and if your customer does not appear in the negative database, you can probably accept the check. Keep in mind that this review does not guarantee that there are sufficient funds to cover the check. If it bounces, your bank account will be debited for the full amount. But you can then submit the check for reimbursement, following the service's specific criteria, and they will reimburse you for that bad check. Check warranty or check verification coverage depends on the type of service you choose. Various check services offer the following:

Standard check warranty service, which guarantees the full amount of the check or a predetermined amount, depending on your agreement.

Verification only, which verifies if an individual is on the database of bad check writers, but the service will not cover the check amount if it bounces.

Electronic check processing, which processes the paper check as if it were a debit card. The money is deposited in your bank account, usually within 48 hours. (Note: The exception is a disputed check. The same rules and regulations that apply to a disputed credit card transaction or chargeback apply to a disputed check.)

Internet Checks
Virtual checks - an online payment option rapidly growing in popularity - present some additional challenges. Because this is a non face-to-face transaction, you can't ask for a driver's license to compare the signature. There is no signature - only the consumer's online agreement. And because it is not a physical check, you can't look for the inconsistencies mentioned earlier.

To protect yourself from Internet fraud, don't ship the merchandise until the virtual check clears.

Check Policy
Post your check policy in full view of your customers - whether it's a brick-and mortar environment or your Web site. Make certain your customers are aware they will be charged a penalty if they bounce a check. Establish a policy that fits your company, and make certain your employees understand and implement it. Check acceptance boosts sales; safe check acceptance is a matter of being careful. Investing in a check guarantee service is a business strategy that you must evaluate for your needs. But even if you don't select one of these services, be cautious on the front end: When your customer issues you a check, be sure to confirm his or her identification, telephone numbers, addresses, the MICR code numbers and the signature on the check. This may save you from financial loss.

ABOUT THIS GUIDE
About the Author
A Word About Our Membership Community
Frank Merchant knows how to get the best price
The Internet Marketplace
   
UNDERSTANDING IT ALL
What are the advantages (and disadvantages) of accepting credit cards for your business?
6 Benefits of Accepting Credit Cards
Disadvantages of Accepting Credit and Debit Cards
Who are the players? How does the money get in your bank account?
Credit Card Transactions Step By Step
Should I go visit my banker for my merchant account?
How can I tell if I will get good customer service?
Be on the Lookout for Deceptive Sales Practices
How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company
Banking Terms You Need To Know
Benefits of Debit as a Payment Option
What You Need To Know About Leasing a Credit Card Terminal
Fraud Protection 101
Cardholder Security: Avoid Monthly Fees, Fines, and Penalties What Is PCI Compliance (PCI DSS)?
   
THE PROCESSES
Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work
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Your Merchant Account
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Should I use a third party processor like PayPal?
   
ANALYZING IT ALL
Quick Summary of Costs
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Total Risk Estimate (TRE)
Total Risk Estimate Worksheet (Low-Medium-High)
   
THE DETAILS
Are you being stung with "Non-Qual" fees for keyed orders?
Have You Ever Felt Betrayed By Your Credit Card Processing Company?
Your Customers' Credit Card Numbers at Risk
Visa: Heartland, RBS WorldPay no longer PCI compliant
PayPal
Marketing 101: Gift and Loyalty Smart Card Technology Ensures Customer Loyalty
Check Warranty and Check Acceptance Policies
How Can I Prevent Credit Card Fraud?
Identity Theft
Merchant Account Comparison Worksheet
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