The Risks of Accepting Checks

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

A: To help prevent returned checks,
follow these fraud-prevention tips from experts such as the
National Crime Prevention Council, the National Check Fraud Center

  • 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
  • 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.
  • Never accept a double-endorsed check, which is a check made out
    to someone else, who then supposedly signs it over to the person
    who submits it as his or her payment for a purchase.
  • Never accept payroll checks.
  • Watch for checks with low numbers. Nine out of 10 bad checks
    bear numbers from 101 to 499, which usually indicates a new
  • 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.

Guarantee 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.

With a check guarantee service, you run your customer’s
check through your point-of-sale terminal, which connects directly
to the check guarantee 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, 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.

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. Each state
has specific laws about fines and fees for returned checks.
Merchants should verify and post these laws where customers can see

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.

– 2001 Cardservice International Inc.

Tim Miller is COO of Cardservice International and has more than 15
years of experience in the credit card processing industry.

The opinions expressed in this column are
those of the author, not of All answers are
intended to be general in nature, without regard to specific
geographical areas or circumstances, and should only be relied upon
after consulting an appropriate expert, such as an attorney or

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