Resources for Check Services

Check Services Business Guide: Check Verification on Electronic and Paper Checks

Check verification is a service in which a business is able to verify the validity of a check presented to it by a customer or business associate. This service also verifies the check writing history of the person as a way of predicting whether or not the check will be returned from the bank for insufficient funds (otherwise known as bouncing a check).

Businesses use check services to reduce the financial risk they take when accepting checks. Collecting on bad checks costs time and money, and there is no guarantee the check writer will make good on the debt owed. Verifying the check prior to accepting it can reduce the likelihood of accepting a bad check in the first place. Additionally, many verification services will guarantee a check, which means they will take on the responsibility of collecting if the check is returned by the bank.

Benefits

While credit card companies notify you immediately if funds are available, it typically takes three to four days to know whether or not a check is good. By the time a business finds out that a check is fraudulent or there were not enough funds in the account, the customer has already obtained the products or services.

Most people will make good on their checks, but some will not. This leaves the business in the position of being forced to absorb the loss. Check verification services reduce the chances of taking a bad check, which may make a business more comfortable accepting checks. For example, a retail shop can increase its sales by accepting checks while lessening the risk associated with them.

Reduce Financial Risk

According to a 2007 study by the U.S. Secret Service, check fraud accounts for $5 billion in losses every year. It considers check fraud the primary way criminals attack financial systems in the country. The Office of the Comptroller estimates 1.2 million fraudulent checks are written each day.

The odds of someone trying to pass a bad check through your business are high. Check services help weed out these fraudulent checks along with serial bad check writers. This, in turn, can help keep your costs down and your prices low.

Decrease Bank Charges

It is well known that banks charge their customers fees for bouncing a check. What is not well known is that banks also charge businesses for these returned checks. By catching bad checks before they are processed through your bank account, you will save money on these fees and avoid account closure from too many bad checks.

Simple to Use

Check services are typically very easy to use. There are point of sale devices that can read the check and virtually ping the bank to verify account details. For companies that do business over the Internet, there are electronic versions of these devices that perform the same function. The ease of use improves the probability of compliance by employees. This is an important factor in preventing bad checks from finding their way into your register.

Collection Partner

Many verification companies that offer check services will also guarantee the checks. This means that if a verification company approves a check and it is returned by the bank, that company will take on the responsibility of collecting the debt from the check writer. Typically, the company will still pay you for the check, which means you won’t be out any money.

Pitfalls

Customer Dissatisfaction

The primary disadvantage to using check services is customer dissatisfaction. Some customers may not understand how check verification works and think you are trying to access their checking accounts. Other customers may get upset when their checks are declined by the system. This often causes embarrassment for both parties and may result in the loss of a good customer.

Employee Dissatisfaction

Employees on the front lines have to bear the brunt of customer dissatisfaction when a check is declined. This can result in unhappy employees and lack of compliance with the system. Employees may quit or avoid using the verification system for fear of a negative reaction from a customer.

Good Accounts Flagged By Mistake

No system is perfect, and a customer may receive a false positive. This is particularly possible if the customer bounced a check before, but later cleared up the matter. When this happens, a customer may feel he or she is continuing to be punished by the system and may be afraid to write checks at your establishment again. This can lead to the customer buying less or avoiding your business altogether.

Pricing

The costs of check services vary from company to company. If you have a brick-and-mortar business, you typically will need to purchase a check reader. Otherwise, you will pay to have the system integrated into your virtual store. This can cost anywhere from $400 to over $1,000 per unit.

The company may charge you per check scanned (about $0.15 to $0.50 per check) with a minimum monthly amount, a percentage rate (usually 1 to 2 percent) based on the total amount of the checks processed per month, or have tiered levels of flat rates based on your estimated volume.

At first blush, it may seem rather expensive to verify that a check is good. However, companies that use check services can reduce their chances of accepting a bad check by 80 to 90 percent. Additionally, many businesses find the cost is worth not needing to put effort into collecting on the bad debt.

Check services for verifying paper and electronic checks can significantly reduce incidences of fraud in your business. It can also save you time and money, and it can help you keep the cost of doing business down to a reasonable level.