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How to Avoid Losing Money From Bouncing ChecksPosted 9/3/2002By Rachael J. Mercer
Now, imagine this could happen to you. Actually, this isn't a hypothetical situation. It has happened more than once to multiple shop owners. One shop owner in Austin, Texas, has lost nearly $3,000 and countless hours fighting to recoup losses from two customers who wrote checks to his business. Unfortunately, both customers placed a stop-payment on their checks prior to writing them. But, because this happened in Texas, the shop owner, Al Hernandez Jr. of Dessau Transmission in Austin, has had difficulty convincing the authorities - including lawmakers, that these customers have committed a crime. Instead, he has had to pursue both customers through civil court, and locating one of them has been completely impossible. “There should be laws that prevent this from happening,” Hernandez said. “Instead, I have wasted time and money trying to get in touch with a customer who stopped payment on a $2,000 check. The city attorney could not believe that what my customer did was not illegal.” He continued: “I have been lobbying for three years for the legislature to do something about these laws, and you never get to talk to anyone. Then, when they call you back three months later they say that this isn't a priority, but maybe it will be next year.” So what can you do to protect yourself and your business? There are several steps you can take to minimize your risk, but in states where committing this act of deceit is not illegal, you really cannot eliminate the risk completely. Check Acceptance Policy
Second, as a business owner you have the right - with proper notice - to refuse to accept checks over a certain amount (decreasing your risk for loss), and you can also refuse to accept checks after a certain time in the day. For example, one would think your risk at 10 a.m. Monday would be less than at 6 p.m. on a Friday. But, this simply decreases your risk for a bounced check, not so much for a “stop payment” check. Customers who arrange a stop-payment on a check prior to writing it will most likely not care what time of day the check is presented, but maintaining a policy like this may bring you peace of mind or even deter a potential “check-thief.” Also, you may opt to accept checks only above a certain number. Again, this is a superficial solution to the problem, as many banks and check companies allow their customers to pick a number at which their checks may begin. Bankrate.com, a Web site for consumer financial issues, suggests the majority of checks that bounce are numbered between 101-499. As a rule, if you enact one of these policies, it is important that you are consistent. Do not make exceptions because you think the person is honest, but instead, stick to your business policies. Remember: you are working hard for this money, and you are doing your best to protect yourself and your investment. As a business owner you have that right. Other Methods of Payment Another more onerous way to avoid losing money to stop-payment checks is to operate on a cash-only basis. If a customer is planning to pay with a check, the same amount of money should technically be in their bank account and available for a cash payment. This said, a customer should be able to withdraw from any of his or her accounts the money they will need to pay for the vehicle repair work. However, take the normal precautions for accepting $20 bills, and periodically check the ones you receive to ensure their authenticity. Remind customers that you accept cashier's checks as a method of payment. Cashier's checks cannot be reversed, so the money that is presented for your services is guaranteed. While they seem to be more financially secure, money orders are not guaranteed, and electronic fund transfers can be stopped much like a credit card payment, which can be disputed. The safest bet, when in question, is to accept and prefer cashier's checks or cash. Another way to protect yourself: As an Automotive Service Association national member benefit provider, GE Capital offers the Car Care ONE program credit card for business owners to provide to their customers. This program is easy to begin and easy to present to your customers. It is convenient for them, as it provides a payment plan that may cover the cost of their repairs - and the GE card offers a 90 days same as cash interest-free option. Electronic Methods of Payment Many companies have begun using an automatic draft system, much like a credit card, that allows their customers to use paper checks, and offers businesses a quicker way to obtain money for services rendered. Because the “paper trail” is eliminated, there is little processing time as with checks. This electronic funds transfer (EFT) does not fully ensure payment, however. Consumers may still stop the transactions much like refusing a credit card charge. A good business move may be to contact a check guarantor such as TeleCheck Services Inc., based in Houston. Many check verification services guarantee checks by keeping a database of bad check writers. With this history they can assess the risk of accepting a check from this customer, and if they approve a check they take responsibility for collecting that money if there is a problem with the check. TeleCheck guarantees checks and will pay you the money owed by the customer if their check bounces. There are two obvious drawbacks to using a verification service. First, it costs more per check to have it verified and guaranteed. Second, if a frequent customer bounces a check and is aggressively pursued for the money, he may not return to do business with you. Basically, you have to weigh the risks. Is it worth more to you to pay a little more to be ensured of the money? And, are you afraid to lose customers who pay with bad checks? Laws to Protect the Business Owner According to Bankrate.com, legislation was introduced by Rep. Anthony Weiner of New York that would work to protect those who receive “bad” checks. The “Fairness to Check Cashers Act” was proposed to eliminate the charges small business owners and individuals are assessed when a check that was given to them is returned due to insufficient funds. The measure was eliminated before it left committees. Contact your congressional representative or your state legislator to see if there are any bills before them related to this issue. Mechanic's liens are another way in which you can go about recapturing the money lost when a customer passes a “bad” or “stopped” check. However, the process for taking out a lien on a customer's vehicle varies from state to state. It may be good, as a regular business practice, to seek the advice of an attorney concerning these issues. He or she will be able to tell you whether your state has laws to prohibit customers from paying with a check after stopping payment on it. In some states, this is termed “intent to defraud,” and offenders are aggressively prosecuted. Know whether your state has the same laws. Your attorney will also let you know what other measures are available to you if your state does not have laws against this practice. An attorney will advise you regarding a mechanic's lien against a vehicle. Find more information about business finance, personal finance and banking laws at Myvesta.org and Bankrate.com. And, call your local and state representatives to learn more about laws that protect business owners from customers with an “intent to defraud.”
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Imagine this scenario: On a Friday afternoon you accept a check from a customer for several hundred dollars. The customer comes in just before you close, and the bank is closed already. As a kind business owner you accept the check, and Monday morning you go to the bank to deposit it. However, the bank informs you that a stop-payment has been placed on the check. In fact, you (along with the bank) discover the stop-payment was arranged before you even received the check. And, because in your state it's not illegal to write a check after arranging a stop-payment, you're simply out several hundred dollars.
If you chose to accept checks, there are some precautions you can take to ensure this scenario never happens to you or your business. First, if you routinely call a bank for check verification, be sure to choose a bank that has flexible, convenient hours. Obviously the bank will not likely keep the same business hours your shop does, so this is just a partial fix for the problem.
