Good News about Bad Checks

by Tom McKay

Originally published in The Crafts Report

A major factor in retail bankruptcies, bad checks cost merchants and craftspeople millions of dollars every year. Even if you’ve been able to dodge the bouncing check, you pay higher prices because other businesspeople haven’t been so lucky. Here’s how to reduce your risk of accepting bad checks, and collect on the ones you do get.

First, don’t accept payroll checks, two-party checks, or government checks. Few crafters can afford to shun out-of-state checks, since at retail shows we are often the ones who are out of state.

Examine each check carefully before accepting it. The American Bankers Association recommends you start at the top and read each in a clockwise circle, as bank employees do. Inspect the imprinted name, address and telephone number, and confirm they are current. Moving to the right, make sure the date is correct, and that the numeric and written amounts match. Along the bottom, examine the bank transit number. That’s the nine digit number preceded and followed by an upright dash and two dots. Verify the check also bears the bank’s name and address.

Tip: Counterfeit checks frequently share certain characteristics -- no perforation where they were torn out of a checkbook, shiny transit numbers (they should be non-reflecting magnetic ink), and low numbers. About 90% of bad checks are from accounts less than a year old, so be wary of checks numbered 100-150 (or 1000-1050).

Two Strikes and You’re Out

You only get two chances to deposit a customer’s check. So instruct your bank not to automatically re-deposit any returned check, as they normally will. If a check is returned bearing the dreaded NSF (Not Sufficient Funds), phone the customer’s bank and say, "I’d like to verify funds of an account holder." Give them the account number (at the bottom of the check, next to the bank transit number) and the amount. If the bank says there is no account, or the account has been closed, report the matter to the police. Knowingly passing a worthless check is a misdemeanor in most states and an indication that fraud was intended.

In most cases, however, the account will still be open. If there are now sufficient funds to cover the check, deposit it immediately. If not, call the bank daily or weekly until it clears.

Another option: call the customer directly. Be diplomatic. Sometimes it’s just an innocent mistake. In the interests of good customer relations I always assume that’s the case. Be businesslike and unemotional, even if you feel like you’re getting the runaround. Request immediate payment by cash, money order or cashier’s check, or by credit card. Do not accept partial payment. You are permitted to add a reasonable amount (e.g. $10 or $20) to cover bank penalties.

If several weeks have passed and you still have not received payment, you may be tempted to threaten the deadbeat. Be careful -- tough talk can backfire. Because of past abuses in the debt collection industry, strict laws have been passed protecting the consumer from harassment by those attempting to collect unpaid debts. So be careful where and when you call and what you say -- or you may find you’re the one in legal hot water. When in doubt, consult a lawyer.

Better yet, contact your state merchant’s association for assistance. Even if you’re not a member, they often can provide useful help. For example, mine provided a form (see below) which has proven effective when friendlier collection attempts have failed. It cites the section of state law pertaining to fraud, and gives the delinquent deadbeat five days to pay up. Your local chamber of commerce or state merchants association might have something similar. Be sure to mail it "return receipt requested" to prove they received it, if you decide to take the dispute to small claims court.

You may also discover the law has given you additional teeth. A recent Maine law, for example, allows merchants to collect damages equal to the retail price of the merchandise, plus a fine of up to ten times the retail price of the merchandise (not less than $100 or more than $500), as well as 12% interest and additional damages determined by the court.

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