Returned checks inevitable risk of running business

If death and taxes are the most often cited unavoidable things in life, new business owners should add returned checks to that list.

Approximately $50 million in bad checks are written in the United States every day, according to the nationwide consumer credit service Myvesta. The stark reality is that if you have a cash register and you accept checks, eventually some of those checks will be returned to you, along with a fee from your bank.

There are a variety of ways to approach the problem. The first is to operate on a cash-only basis, which can be problematic for a gas station, restaurant or other business where the customer already has the product in their possession before paying for it.

There are check-verification systems operated by collection agencies, which scan checks at the check-out counter. And some small businesses track down the offending customer themselves, which costs time and money but keeps business on a more personal level.

A typical small-business strategy is to keep the collection agency available, but only use them for the checks that go unpaid for too long.

"We always resubmit the check at least twice and make a personal call," said Jack Burnett of the Palmer Bar. "But every now and then, you get somebody who just won't work with you and then it goes to the collection agency."

Burnett also limits the size of the checks his employees can accept so that his unpaid accounts are reasonably small. And he warned that out-of-town checks are more likely to bounce. He said his regular customers usually pay up promptly, because they want to return.

"We're on a first-name basis with most of [the customers] and being a neighborhood bar we're are one step ahead of places where people come from all over," he said. "If we have to turn them over to a collection agency, we don't want to see them again."

Burnett hasn't shopped for an electronic check verification because his volume of unpaid checks doesn't warrant it.

Collections agencies are tuned in to that-- in fact, many will provide free equipment and free check verification service to merchants with enough volume. That's because the collection agency slaps the consumer with a fee.

Fees for returned checks in Alaska of up to $25 are legal immediately, and collections agents who take offenders to court can get three times the amount of the check.

"[Merchants] need to have somewhat of a volume of checks in order to pay for the service," said Diane Bruns, office manager of Anchorage-based CR Inc.

CR Inc. is a collections agent that does the bulk of its work in bad checks. They operate a verification service called CheckRite, which they install at the point-of-sale for free if they believe there is enough traffic there.

There are other such services available and, although it might be counter-intuitive, the reason check verification can be offered for free is because no system can stop every bad check.

"A lot of people think we are looking at their bank accounts and we're not," Bruns said of the system. "I used to think that before I got into this business."

What the scanner actually does is check for the person's bank account on its database, and each check-verification database is unique. If customers haven't bounced a check before, or if they aren't currently on the database, then the service won't recommend denying the check.

Bruns said the routine at the cash register is still key to the transaction, even if you ultimately turn all of your bad checks over to a collection agency.

"It's very important that the data that's collected up-front is accurate," she said. That data can include a driver's license number, social security number and work and home phone numbers. Clerks should be trained to monitor checks just as if the verification scanner wasn't even there. Ask for ID, and make sure the signature and information on the ID matches the check.

Most bad checks come from consumer error, and merchants will have a tough time trying to guess who is likely to bounce a check. But Bruns said there are patterns that can help a merchant to profile a bad check.

"We get a lot of counter checks and checks with real low numbers," she said.

Checks from new accounts that banks issue with little or no printed information are also frequently returned.

"If I were a merchant, I would never take one, unless I did about 15 minutes of research on the person first," Bruns said.