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.
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