How to Avoid Bad Checks

Each year, retailers suffer losses because of bad checks. Whether you're the owner of a small business or you are a private individual who wants to prevent getting ripped off, there are several strategies available to you to avoid receiving bad checks.

Instructions

Difficulty: Moderately Easy

1. Create a strict policy for accepting checks, if you're a business owner. While it's not legal in all states to require customers to include credit card information on a check, you should make this part of your policy if it's permitted where you live. Also, establish clear guidelines regarding proper identification and documentation as well as monetary limits on checks.
2. Avoid fraud by insisting that each and every customer who tries to pass a check in your store provides current, valid identification. Do not accept expired driver's licenses as ID. Double-check to make sure that the name and address information on the check matches the name and address information on the license.
3. Perform a physical inspection of the check. Bank-issued personal checks always have perforated edges and are manufactured using the same paper almost universally. Make sure that all printed numbering and lettering on the check is evenly spaced, since inconsistencies can signal an attempt to print and pass a fake check.
4. Take a look at the number on the check. Be extra cautious if the check number falls below 500. Ninety percent of the bad personal checks passed each year in the United States are numbered below 500.
5. Refuse to accept second-party or third-party checks that have been signed over to another individual, who then attempts to use them to pay you for goods or services. Passing checks from inactive, closed or invalid bank accounts is the leading cause of check fraud.

Tips & Warnings

• Have the cashier who accepts the check record her employee identification number or her initials on the check. In the event you have to prosecute someone for check fraud, you'll need a record of the individual who processed the check in the first place.
• Protect yourself by setting up a check authorization system or hiring a professional service that verifies the validity of checks before you accept them. ECHO Inc. is one example of a company that provides these services (see Resources below).
• It can be difficult, in fact almost impossible, to collect the money you're owed if you accept a bad check. Retailers are urged to turn bad check accounts over to a collection agency as quickly as possible, since agencies represent your best chance of actually getting the money you're owed.