Check Verification is Truly a Business Friendly Service

    July 31, 2003

Project into the near future and envision a time with “real time” checking – when merchants have the ability to know if the customer has sufficient funds in his/her banking account to cover costs. Like a debit card, the check amount will be immediately debited and transferred. Merchants espouse this new way of doing business, no longer assuming a risk with each check transaction.

While waiting for “real time” checking, business owners must formulate a policy for dealing with checks. Let’s consider and weigh the options:

Refusal to take checks – Many business owners shy away from accepting checks. Indeed, “no checks allowed” signs adorn many retail establishments. On a positive note, these merchants avoid the hassles inherent in taking checks. They do not have to confront NSF checks and the concomitant effort needed to collect on those owed funds. Even if the checks are good, they still would have to apportion time for their accounting process, making deposit slips and taking them to the bank. Sounds like a chore, doesn’t it?

However, by not accepting checks, merchants lose a sizeable segment of potential clients. Many customers do not have credit capabilities, and can only pay with checks. Others are “maxed out” on their credit cards and forced to use other types of payments. Allowing check payments broadens the total customer base, inviting check-writing folks to assume the role of buyer.

The Green Sheet, a well-known and respected financial services publication, estimates that a retail establishment can increase its profit margin by 30% if checks are accepted. Retail merchants who have a host of expenses cannot afford to lose any profit.

Assuming the business accepts checks, an owner may opt for any of the following alternatives:

Check guarantee – These companies purportedly ensure than the merchant will be reimbursed if any check is NSF. This works great in theory and can even work in practice on occasion. But, too many times, the merchant pays an exorbitant amount for coverage (hey, the guarantee companies are in business to make money!) or may not be reimbursed if some vital information is left off the check (e.g., driver’s license). Still others pay the merchant the face value of the check at first only to withdraw the money out of the account if they cannot collect from the client.

Accept checks without any protection – While it is not exactly like playing “Russian Roulette,” check-accepting merchants who do not have any protection in place may inevitably be hit with a bad check. (Fortunately, less than 2% of the checks that are presented in retail stores are bad.) What does the merchant do now? He/she must invest time and money trying to recover it, either calling the customer directly or hiring a collection agency to do so. This cuts into cash flow and the “bottom line.” It behooves these merchants to have some protection in place, though there really exists no fail-proof solution.

Accept checks with check verification – As health insurance serves to mitigate medical expenses, check verification serves as a type of insurance to lower the expenses of doing business. Most very successful brick-and-mortar establishments (think Walmart) accept checks because they ultimately generate more business and profit. However, the inherent check-acceptance problem, specifically receiving bad checks, still needs to be addressed.

While check verification cannot ensure that the customer has sufficient funds to cover the product/service cost (for all intents and purposes, eliminating NSF checks), it can dramatically reduce the number of bad checks an owner receives. How does this work?

Check verification simply provides a database of bad check writers (i.e., their bank account information) to compare against any check submitted to a business. If the account listed on that database, an owner may consider this “code red” and not process the payment. The owner can simply ask for an alternative form of payment. Of course, such a database must be extensive and continuously updated.

Another way of viewing check verification is as a “look-out.” It has the capacity to warn a business owner about potential dangers of accepting a specific check. As it is a rather inexpensive service, it seems that it should be part of any business plan and process. Check out verification as verification will “out” checks – those that may have bounced.

Author, William Hamilton, owns a payment processing company, IntelliCollect, and their services are listed at: His company offers tremendous assistance to new and veteran business owners who need an effective solution to accept credit cards and checks.