Handling Bounced Checks

Reduce your exposure and improve collections
By Karen Kingsley, Boss Kingsley Ink 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:

1. Reduce your likelihood of receiving a bad check
2. Put systems in place to monitor and salvage bounced checks internally
3. Be prepared to take legal or civil action to recover your cash

 

If yours is a retail business, take steps to avoid bad checks

Accept 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.
Try: Telecheck, Cross-check and Echo all provide check verification services you can subscribe to. You might also consider PayPal if you are an Internet business.

Contact customers who write a bad check

Nearly 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.
Try: Find Accounting Software can help you find software that automatically alerts all departments to trouble with a client.

Employ electronic check re-presentment

Checks go through the traditional clearing process only twice, but electronic check re-presentment gives you a third chance to get paid.
Try: Contact The Electronic Payments Association (NACHA) for more information.

Consider small claims court

If the balance is small you can go to small claims court without an attorney.
Try: Lawguru.com offers answers to most simple questions regarding filing and collecting with small claims. Each state has its own FAQ and/or forms area on the Web for Small Claims.

Use collection agents to recoup

If you're having trouble collecting from clients, call a collections agent. Get a collection agency specialist to help you out.
Try: Find one at The Association of Credit & Collection Professionals.

• 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.