How to Collect on Bad Checks
I don’t want to shock you, but even though we are now almost at 2020, and electronic banking, no cash stores, and ATMs are all part of everyday life, a lot of people out there are still writing checks. Some people write checks because that’s what they’re used to doing. Some people like to write checks because it makes their accounting easier. Some people write checks because they like the lag time it gives them to actually get the money in the account. Of course, some people write checks knowing that the check will bounce. What’s a business owner to do with bad checks?
Don’t Accept Personal Checks
I always advise my clients to make it as easy as possible to pay an invoice. But given the number of easily accessible ATMs and the amount of ways to pay today, there’s simply no reason for most businesses to accept a personal check. Most individuals actually prefer to use a credit card for large purchases, since they often receive points or other rewards for doing so. If you are going to accept a personal check, make sure you use a check verification system. Business checks are slightly different. Having clients fill out a credit application will help you collect on any bad business checks.
Check on Funds
If you do accept a bad check, call the bank it was written on before attempting to redeposit. Sometimes, people miscalculate and accidentally write a check before they have the right funds. If the funds are available, you can redeposit immediately.
Talk to the Customer
If this is your first bad check from a customer, you may want to assume the best and pick up the phone. Have a polite and respectful conversation with the customer. He or she may be pretty embarrassed to have written a bad check. Most importantly, be prepared to accept payment via credit card or an alternative electronic method over the phone. If you cannot reach the customer by phone, do not leave a message. If you want to escalate the situation, send a certified letter requesting payment within a certain time frame. Make sure to keep a copy of the letter and the receipt. Personally, I don’t think business owners should do anything more than this on their own. Although business owners who are owed money are not covered by the Fair Debt Collection Protection Acts (FDCPA), different states have different rules when it comes to collecting on debt. Unless you’re trained in finding and recovering money, you don’t want to waste your time or risk your reputation trying to get a reluctant customer to pay.
Call the District Attorney
District Attorneys (DA) rarely investigate or prosecute a bad check writer, especially for a small amount or one-time problem. However, many DA offices have a bad check restitution program. The program differs from state to state, but usually the customer will be contacted by a collection agency contracted by the DA office. Because the agencies can use the DA’s letterhead, the threat of legal action from the state often gets you paid quickly.
Consider Check Recovery
Check recovery services are usually free to the business because the call centers are funded by the state-mandated fee that you’re entitled to charge the check writer for writing a bad check.
A check recovery service may monitor the check writer’s account on a daily basis. That way they know when the account has sufficient funds and they can redeposit the check at the right time.
Most reputable collection agencies will only charge you if they can collect. Although you won’t receive the full amount from the check, the way you would if you used a check recovery service, a collection agency can save you valuable time.
Group, we feel that in addition to helping you collect on bad checks or other
bad debt, collection agencies can also be valuable business partners. We can
help you learn the practices you need to avoid future bad debt and collect
quickly when you can’t.
About The Author:
Dean Kaplan is Principal at The Kaplan Group. Dean's expertise is widely recognized in the debt collection industry. His advice has been published in a number of industry newsletters such as Credit Today and InsideARM and he is a frequent speaker at industry events.