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Avoiding Bad-Check Headaches

Posted by: Rod Kurtz on May 15, 2009

Dealing with bad checks can be a big headache for small businesses. That’s why the easiest way to handle bad checks is to make sure that customers don’t write them in the first place. Here are some simple steps that will both help you avoid bad checks and make it easier to collect payment later on:

•Get an address. First, have the customer sign the check in your presence and make sure that the customer’s phone number and address appear somewhere on the check. If the customer has an address that doesn’t appear to be permanent or that would make it difficult to trace her later on—e.g. a hotel room or a post office box—think carefully before accepting the check.

•Avoid post-dated checks. Next, examine the check carefully before accepting it. Beware of checks with crossed out or rewritten marks. Check the date to see if it’s accurate. If you must accept a post-dated check (which can’t be deposited immediately), be very careful. In some states, the writer of a post-dated check cannot be held liable for writing a bad check.

•Confirm identity. Collect identification such as driver’s licenses when taking checks. You may wish to write down the customer’s driver’s license number on the check.

Remember, you don’t have to accept checks. You can always require customers to pay with cash. To avoid a discrimination claim, you must apply your check policy consistently to all customers.

Elizabeth Milito
Senior Executive Counsel
NFIB Small Business Legal Center
Washington, D.C.

Reader Comments

Curtis Picard

May 15, 2009 9:21 AM

I would add that you can ask for identification to help verify the address. If the driver's license has a different address than the check - red flag.

Also, be leery of low numbered checks. It may indicate a newly opened account.

Make sure your staff is well trained! That's probably the best defense if you choose to accept checks.


November 9, 2009 1:01 PM

Temporary checks are from newly opened accounts as well.

As real estate investors, we’ve held mortgages for years. Occasionally we’d receive a bad check and had troubles collecting. But we found a free service that goes into the check writer’s account and transfer the face amount of the check to our account if they made a deposit in the first 30 days. After that, this service reports them to credit bureaus and had attorneys to pursue them. They collected all but one which they are still working on. It cost me nothing and my clients learned fast to make good payments.

We also found an automatic credit card plan that we set up when possible and every month it collected the payment for us. Cost a couple of percent; but the money is always on time and we take fewer checks.


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