Does your business accept cash, credit cards and checks? As a business owner, you need to be smart about how you handle these transactions. Learn about how you can manage these transactions in our three part article series from the Small Business Administration.
Policies for Accepting Checks
If your business accepts personal checks, establish a detailed check acceptance policy to help identify and avoid bad checks. Don't just make a document and file it away--be sure to train your employees on the new policies and post reminders in visible and prominent locations.
Common check policies include variations of these guidelines:
- Checks must be from a local or in-state bank
- Checks should not be written and accepted for more than the purchase amount
- Checks should not be accepted that are starter checks, unnumbered checks, or non-personalized checks
- Accepted checks should be deposited as quickly as possible. Banks may refuse to honor checks dated back six months or more
- Instruct your employees to carefully examine every personal check for information that is essential for chasing the check:
o Personalization - The customer's complete name and address must appear on the check
o Date - The check date must be current. Do not accept post- or future-dated checks
o Bank I.D. numbers - The check must have a bank identification number, or routing transit number, that runs across the bottom, along with the customer's account number and check number. This information is used by a bank to identify the transaction and resolve payment issues
o Payee - The "Pay to the Order of" section must indicate your business's name
o Dollar amounts - Both the written and numeric amounts must match
o Customer Signature - The check should be signed in your presence and verified with photo identification
Verifying identification can help your business safeguard against fraud. However, some state laws regulate which forms of identification businesses can require to see. Depending on your business location, it may be illegal to require customers to show a credit card as a condition for accepting their check. Commonly accepted forms of identification often include a state-issued driver's license, I.D. card, or military I.D.
Follow these tips when verifying customer identification:
- Make sure the signature on the customer's identification matches the signature on the customer's check
- Use discretion when recording personal information like phone numbers, identification numbers and expiration dates
- Trust your instincts and be on the lookout for suspicious behavior or fraud "red flags." For questionable transactions, call the customer's bank to verify legitimacy of a check
What should you do if a check is returned because a customer's account is closed, or has insufficient funds to pay for the transaction? In addition to instituting a check policy, some new businesses are employing the help of electronic check verification companies to identify flagged individuals. For a monthly fee, businesses can compare a customer's name against a database of individuals that are known to have written bad, stolen or forged checks.
Even with precautionary measures in place, businesses that accept checks may still have a bad check occasionally slip by. If a check fails to clear on your first attempt, your bank will generally attempt a second deposit. In some cases, the customer can quickly resolve the problem by transferring or depositing funds to cover a bounced check. If the issue is not resolved by the customer, you can consult your local law enforcement agency to understand your rights and options. Some states require businesses to mail a registered letter and allow a designated waiting period to lapse before further action is taken.
If the issue remains unresolved, consider filing a suit with a small claims court or employing a collection agency to resolve the payment. Many businesses choose to employ a collection agency to avoid a lengthy and expensive court settlement.
Occasionally, you'll find a customer has stopped payment on a check if they believe the products or services bought did not live up to expectations. If this is true, customers may be entitled to a refund or a reduction of the amount owed.