Posted Thursday, February 10, 2005
$350 million in bad checks are written each and every week. That fact alone makes bad checks a serious problem for American businesses. It is almost inevitable that, if your business accepts checks, you have been affected by this. As well as being stuck with bank fees for depositing a bad check - and the very real possibility that the bad check could impact your bottom line - there is the time, aggravation and cost associated with recovering the funds. It is often the case that recovering the check can incur more in costs than the value of the original debt. Inevitably, many smaller businesses write off bad checks, believing that they cannot afford to pursue the debt. However, there are a number of ways your business can fight back and minimize the pain of bad check recovery.
IT'S AN INNOCENT MISTAKE...
For small and mid-sized businesses, the first recourse is to call the customer and explain the problem. Don't immediately assume that the customer intended to defraud your business. It is often true that an innocent mistake has been made and a calm, reasoned telephone call will recover your funds and keep what may be a valuable customer. Please be aware that threatening a debtor with publicizing their name or notifying their employer is illegal, so speak only to the person owing the funds and stay cool !
PURSUING THE DEBT
In most States, you are required to send a certified letter to the check writer before you can institute court proceedings. You may request that the debtor also repays the bad check fee you have incurred. The check writer is usually required respond within 10 or 30 days. This varies by state, so please check with your State Attorney General's office. Again, a calm and reasonable tone often works well and will ensure you stay within the law. Reviewing the Fair Debt Collection Practices Act (http://www.fair-debt-collection.com/fair-debt-act.html) before you draft your letter or make a call is highly recommended.
While these two methods are time and cost-effective, if you have still been unable to recover the check the obvious next step is to institute court proceedings or hire a professional debt collection agency. However, these are time consuming and potentially expensive options and - for many small businesses - may mean that the cost outweighs the benefit. Nevertheless, there are alternative check recovery methods that don't have these possible downsides.
CHECK ENFORCEMENT UNITS
Some areas now have a check enforcement or check recovery unit that is part of the state or district attorney's office. These are not available in every state and the services provided do vary. In general, though, the check enforcement unit will investigate and prosecute the debtor on your behalf and you will receive the full face value of the check. Contact your local District Attorney's office to see if this service is offered in your area.
ELECTRONIC CHECK RECOVERY
A better all round option is to consider using one of the electronic check recovery services now available. There are many advantages to electronic check collection over traditional recovery methods, not least the fact that many of the companies offering this service charge no fees to your company. Other benefits include:
i) Increased Recovery Rates : The National Automated Clearinghouse Association (NACHA) reports increases in recovery rates by as much as 50% in comparison with traditional recovery methods.
ii) Low Recovery Costs: No bank fees for redepositing an NSF check electronically.
iii) Benefits to Customers: No need for customers to receive collection letters and calls or supply a money order or cashier's check.
iv) Fast Recovery Times: Traditional recovery methods can take between 30 and 60 days. On average, electronic check recovery takes 7 days, after which time the recovered check is deposited into the merchant's account.
v) Out of town checks are handled as quickly and easily as local checks.
While bad checks are a fact of business life, recovering funds owed to you is not the herculean task it might first appear. You can fight back and still avoid many of the headaches that have been traditionally associated with pursuing a debt.
About the Author
Jason Schwartz is CEO of Creative CashFlow Solutions, a check processing company established in 1998. Learn more about their free electronic check recovery service here: (http://www.ilovechecks.com/recovery/)