FORTUNE Small Business:

How to handle bounced checks

Hate dealing with rubbery payments? FSB's experts know how to avoid them.

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(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."  To top of page

How do you ensure that the checks you receive translate into cash? Do you use a check service program? What has been your experience with it?

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