How Does Check Verification Work?

Check verification systems help screen for fraudulent or bounced checks.
Check verification systems help screen for fraudulent or bounced checks. (Image: Jupiterimages/ Images)

Accepting checks provides convenience of flexible payment options to your customers, but it also comes at the inherent risk of accepting fraudulent or bounced checks. While accepting checks will always pose some risk to merchants, check verification systems provide a means to help screen potential check-writing risks from your transactions. Merchants offer several methods of check verification processes, although none can completely guarantee payment on all checks.

Negative Check Database

One method of check verification uses a check writer’s prior credit history and behavior to screen for potentially bad checks. Account holders who write a check that is returned to a merchant because of insufficient funds are placed in the negative check database, which indexes individual accounts by their routing and account number, as well as driver’s license information if it was collected with the check. The least complicated verification system, it may return false flags for consumers incorrectly placed on the list or consumers placed on the list years ago whose recent history doesn’t pose a risk.

Routing Number Verification

Another simple method of check verification system, routing number verification merely checks the bank’s information provided through the check’s routing number and the account number on the check to determine if the account from which the check draws funds exists. This method is primarily useful in screening for fraudulent checks and doesn’t provide information about the amount of funds in the account, so your business may still face a high number of returned checks if you use this system.

Checking Account Number Positive Verification

Based on the same foundations as routing number verification, checking account number positive verification yields more information for merchants. In addition to verifying the account’s validity with the bank from which it’s drawn, it also provides additional information such as if the account’s been closed, if its daily withdrawal limit was reached, if the account isn’t a checking account or if its balance has been reduced below zero. Some institutions offer privacy guarantees to their customers, so descriptions of all flags may not be available if you use this information.

Real Time Check Verification

Because most checking account holders also have a debit card or an ATM card for remote deposits, the real-time check verification uses the ATM network to verify the validity of checks and the amount the check draws. In addition to determining if the account is valid, real-time check verification systems also use information available to ATMs to verify the account holds a balance sufficient to cover the amount the check draws. Although this system provides a look at the account balance when the check is written, the funds may be withdrawn or otherwise unavailable when you cash the check.

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