How to handle bounced checks

Ask FSB

Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.

Your name:

* Your e-mail address:

* Your city:

* Your state:
Select Outside U.S. Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Dist. of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

* Your daytime phone #:

* Your questions:

More from FSB

Help wanted for HR firm A CEO and rodeo queen King of the mountain bike

Current Issue

(FORTUNE Small Business) -- Dear FSB: I read your recent column on collecting bad debts ("How to Make a Client Pay Up"), and have a related problem. Some customers bounce checks, which are returned for insufficient funds on amounts such as $100 or $300. These are too small to call for small-claims court or collection agencies, but add up to big money over time. What can I do?

- Henry Rivkin, Co-Owner, Afiber Mannequins, Inc., Orange, NJ

Dear Henry: Of course, writing bad checks is a crime, and your local district attorney's office may be willing to help you file complaints against any habitual offenders.

But to foil the occasional rubber check writer, there is a simpler way: Ask almost any credit card processing company about its check service programs, which set you up with a scanner tapped into a national database.

You run the check through the scanner and, if the account has a history of bounced checks, you'll be warned. If the scanner approves the check, the service guarantees it. Even if it later bounces, you'll be reimbursed the full amount.

Some check services go further, treating the check as if it were a bank debit card, and putting an instant lock on the account's funds - if you don't get around to depositing it right away, the money is guaranteed to be there when you do. There are also check-service programs that will pay you even if a check writer deliberately stops payment.

With so many features available, you'd be wise to shop around. Fees for different service combinations vary widely. Generally, check-scanning costs about 2% of your sales, which may not seem worth it if less than 2% of your receivables bounce.

But, says Rick Blesofsky, president of Tribul Merchant Services, a New York City-based firm that sells credit card processing and check scanning services: "The fees are negotiable and, if bad checks are a persistent problem, there's no reason not to protect yourself."