Bum checks are the bane of many a small business. For local businesses especially, accepting checks is a service to customers that is hard to eliminate. But any business that accepts checks will ultimately be faced with some that bounce – returned for insufficient funds – and have procedures to deal with returned checks is imperative.
These are the steps you will want to take:
- Reduce your likelihood of receiving a bad check
- Put systems in place to monitor and salvage bounced checks internally
- Be prepared to take legal or civil action to recover your cash
If yours is a retail business, take steps to avoid bad checksAccept local checks with a preprinted name and address. Require that checks are written and signed in your presence. Don't accept third-party or post-dated checks, and verify large checks with the issuing bank.
Contact customers who write a bad checkNearly everyone bounces a check from time to time by mistake. Have your bookkeeper confirm with the check issuer that this wasn't a mistake. Ask for immediate replacement of the check. Make sure your sales team doesn't continue to offer products to customers who have issued checks with insufficient funds to cover them.
Employ electronic check re-presentmentChecks go through the traditional clearing process only twice, but electronic check re-presentment gives you a third chance to get paid.
Consider small claims courtIf the balance is small you can go to small claims court without an attorney.
Use collection agents to recoupIf you're having trouble collecting from clients, call a collections agent. Get a collection agency specialist to help you out.
- Establish clear credit policies with clients so they are liable for all overdraft, legal or collection fees.
- Move fast. If a customer is in trouble, there are likely to be others asking for compensation. Be first in line.
- You can usually resubmit a check once. Consider your customers' cash flow. Submit the check at a time when you think their cash flow may be better: perhaps early in the month, or the day before payroll.