Accepting checks can allow your business to broaden its market beyond cash-only customers. Businesses that decide to take customers' checks do need to protect their financial health, however.
There are a number of ways criminals try to take advantage of businesses that accept checks from customers. According to the federal Office of the Comptroller of the Currency, you should be particularly alert for checks that appear to have been altered or counterfeited, have forged signatures or endorsements, or are drawn on closed accounts.
There are also various check-related schemes used to attempt to defraud businesses; for example, writing fraudulent or altered checks for more than the amount of purchase and requesting the excess in cash. When the business deposits the bad check, the loss will be for the total amount: both the cash and the product or service.
To reduce loss while offering the convenience of paying by check, businesses have developed effective best practices. The Small Business Administration says training employees to employ these consistently will help to reduce, if not eliminate, losses.
There are limits to what a business can do to reduce check fraud. For instance, a business needs to respect customer privacy when requesting and recording account numbers, driver's license numbers, phone numbers, and other personally identifiable information. Check with your state laws or with your attorney to understand the acceptable types of information you can request when accepting a check.
For example, in some jurisdictions businesses cannot require a customer to show a credit card as identification. Driver's licenses, state identification cards, military identification cards, and other government-issued documents are generally acceptable for proof of identity.
Despite best efforts, most businesses that accept checks will have to accept some losses. However, following these best practices can help ensure that those losses are as small as possible.
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