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You need to accept checks to conduct business, but if you accept one that bounces, it can cut into your profits. How can you avoid bad checks? Follow these five rules, and bad checks should be a very rare occurrence.
With desktop–publishing software, laser printers, and scanners, it is far easier for people to alter, forge or duplicate checks than ever before. Evaluate a check you receive carefully. Smudge or erasure marks are a red flag. Smooth edges are another; real checks are perforated either on the top or left side of the check.
A large majority of bad checks are written on new accounts. Do not accept "starter" checks — the temporary checks that a bank issues to customers before their printed checks are ready. It's always a good policy not to accept any check that does not have the customer's name preprinted on it.
When accepting a check, always ask to see a photo ID, such as the customer's driver's license or identification card. Make sure to check their physical characteristics and signature against the ID. Ask for the customer's home and work telephone numbers, so you can contact him in case the check does bounce.
Establish a waiting period for refunds. You can be burned when a customer makes a purchase by check and then returns the merchandise the next day for a cash refund. If the check bounces, you are out the cash paid for the refund. To avoid this scenario, require a five–business–day waiting period to allow checks to clear before cash refunds are paid.
You might benefit from the services of a check–verification company. By paying a monthly fee of about $50, you can tap into a database of individuals who write bad, stolen or forged checks.
Remember this too: If you do receive a bad check, the bank allows you a second attempt to deposit it. After that, the responsibility for collecting the money is yours. Contact the customer and explain the problem calmly. Most people clear up bad checks fairly promptly. If the customer refuses to pay, hold on to the check for a while and call the bank periodically to see if there are funds in the account to cover it. If so, cash the check immediately.
If the funds never seem to become available, then another option is to go to the police. Many localities have a bad check unit as part of the local police or District Attorney. One call from them may just do the trick.
A final option would be to sue in small claims court. The filing fee is low (usually around $50), and the procedure is expedited and simple. A month or two after suing and you will have a judgment that can be enforced by an earnings levy, a bank levy, or a real estate lien.