Best Practices for Accepting Checks
by Mark Henricks
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.
Protecting Against Fraud
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.
Maintaining Best Practices
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.
- To start with, don't take temporary checks or checks with low numbers. Criminals may open bank accounts with small deposits and then use temporary, starter, or unnumbered checks to write checks for far more than the amount on deposit. The business that accepts these checks can be left holding the bag.
- Only accept checks for the purchase amount. Criminals may offer checks for larger amounts and request the overage in cash. They may attempt this fraud using two-party endorsed checks, paychecks, or cashier's checks. The Comptroller's office specifically warns against frauds using what appear to be checks issued by banks or similar institutions.
- Only accept checks from in-town or in-state banks. And deposit accepted checks as quickly as possible, since banks may not honor checks presented more than six months after they are dated.
- Teach employees to make fraud-reduction practices part of every sale. They should ask for two forms of identification, list each on the back of the check, examine each to make sure it appears legitimate, and be alert to any efforts to distract them while doing so.
- Checks should be personalized with customer name and address, and must have a bank routing transit number along the bottom edge, to the left of the account and check numbers. Font and other characteristics of numbers and other printing should be consistent.
- Only accept checks dated the day of the transaction. Your business name should be listed as payee and the written-out and numeric amounts of the check should be identical.
- The salesperson should witness the customer signing, and compare the signature to a form of photo identification. In case of doubt, call the phone number printed on the check (if any) and ask for the account holder by name. You may also call the bank on which the check is drawn.
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.
About This Author
Mark Henricks is a freelance journalist covering business, entrepreneurship, technology, personal finance, health and fitness for leading publications.
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