“Good resolutions are simply checks that men draw on a bank where they have no account.” – Oscar Wilde
Is there anything more infuriating than a customer paying with a check that bounces?
These days merchant services providers are making electronic payments easier with systems that “ping” a bank account and make sure funds are available. If can get all your check paying customers doing that, great! However, most small businesses are going to receive some paper checks from their customers and will therefore risk picking up a bad check.
Small businesses must have a plan to handle bad checks. As with any area of credit risk, the best practice is to have a plan ready if you need it, and not have to scramble if you do receive a bad check.
It is against the law to pass a bad cbeck. Laws vary from state to state and you can find information on your state here, but also, it is a good idea to check with your local police department, as they are charged with enforcing state laws. You should check with your local police department whether or not you would ever want to prosecute someone who passed you a bad check,because the police can advise you about what kind of notice you need to send, how long you need to give someone to make good on the check, and other important information.
Here are some important things to remember when you are putting together your plan:
1. Determine the nature of the bad check. A check that is returned for insufficient funds may simply mean that your customer made an error or is in a temporary cash bind. A check that is written on a closed bank account is another matter, and could indicate an attempt to defraud you.
2. Give proper notice as required by state laws.
3. Decide how far you wish to pursue bad checks and make certain it is part of your customer contract or financial agreement. Your approach will be driven by your local police department as well, since many departments will not pursue checks under a certain dollar amount or after too much time has passed.
4. Act quickly! As with any collection matter, delay could cost you.
5. Determine who in your organization will contact the customer by phone. In addition to required legal notice, a phone call from someone in a position of authority in your company could let the customer know that you are determined to collect the funds, but also that you are willing to work with them. Do not threaten, simply let them know that you must collect the funds and tell them when you expect them to make good.
6. If you have any intention of pursuing criminal charges, do not take partial payment. In many states, the police will not pursue a check that has been partially repaid.
Have you had any issue with bad checks in your business? What did you do? We would love to hear about it!