Monday, November 14, 2005

Small business

bears brunt of

bounced checks

Checks keep bouncing

in credit card economy

From dry cleaners to dentists, most small businesses offer customers many ways to pay: checks, cash or credit cards.But even in a world where consumers are increasingly shifting to paying bills online or by pulling out the plastic, a handwritten check is still common currency for many small-business owners. And it’s why bounced checks remain a headache.

“People continue to bounce checks, and many small businesses are caught by the costs incurred by a bounced check,” said Martyn B. Hopper, the Sacramento, Calif., state director of the National Federation of Independent Business. “It’s always a problem.”

About $5.5 billion worth of check fraud attempts were made in the United States in 2003, according to the most recent numbers from the American Bankers Association. The numbers include both counterfeit checks and those written without sufficient funds.

Bad checks cost businesses about 1 percent in revenue annually, according to Mr. Hopper, with retailers being hit the hardest.

“Retail small businesses have more of a problem with bounced checks than larger manufacturing companies or people who don’t deal with the public,” he said.

No one needs to explain that to Al Daniel, owner of Alhambra Dry Cleaners in Sacramento, who has seen plenty of bad checks in his 40 years in business. “Bad checks affect everybody’s bottom line,” he said. “It can run into thousands of dollars.”

When it comes to chasing after bad checks, small businesses have several options: They can pursue bad-check writers by phone and certified letter, call collection agencies for help or go to local law-enforcement agencies.

Because it’s considered a white-collar crime, bad checks are typically the domain of the district attorney’s office in most counties.

“It’s amazing how prevalent check fraud really is,” said De Anna Bingham, spokeswoman for the bad-check program in the Placer County, Calif., District Attorney’s Office. “By the time it comes here … the merchants are pretty fed up.”

Since the early 1990s, when Placer County’s program began, it has pursued cases ranging from large merchants with thousands of dollars in bad checks to a single instance of a 14-year-old boy whose check for a lawn-mowing job bounced.

“We try to work with the check writer to help merchants get 100 percent of the money back,” said Ms. Bingham, adding that her office has an average recovery rate of 76 percent.

To ward off potential losses from checks, small businesses employ various means. Some businesses sign up for check verification services, which can quickly validate a check either by phone or by machine. The services typically charge merchants a per-check fee. Other businesses, fed up with losses from bad checks, have simply stopped accepting checks from their customers.

Lisa Morgan, manager of Fleet Feet Sport in Sacramento, said the athletic shoe and apparel shop stopped accepting checks two years ago after problems with counterfeit checks.

“Unfortunately, we have a lot of customers who have been shopping here for a long time, and a lot of older customers don’t like ATM cards. We have to say ‘no’ to everyone,” she said.

Others, like dry-cleaner owner Mr. Daniel, say they are not about to cut out check-paying entirely, despite the risks.

“You risk alienating people when you start doing the ‘no-check’ thing,” he said. “Losing customers is not worth what you lose in bad checks.”

Instead, Mr. Daniel said he is strict about checking customers’ identification and never accepts checks for large amounts — generally above $300.

Charles Bruce, executive director and founder of the National Check Fraud Center in Charleston, S.C., said the center gets about 800 check fraud reports a day.

“Anything man-made can be counterfeited,” said Mr. Bruce, whose center acts as a clearinghouse and information center on check fraud through its Web site,

To stem their losses, businesses should require that checks be written in the presence of the cashier and be from a local bank, according to Fred Steingold, author of “Legal Guide for Starting and Running a Small Business.”

He also advises merchants not to cash second-party checks, such as a paycheck or a Social Security check, or allow customers to write checks for more than the purchase price.

Meanwhile, American consumers are moving away from their checkbooks. In 2003, for the first time, electronic payments surpassed cash and checks as the preferred payment for in-store purchases, according to a study conducted by the American Bankers Association and Boston-based strategy consulting firm Dove Consulting. The study found checks accounted for just 15 percent of all in-store purchases, compared with 31 percent for debit cards.

cDistributed by Scripps Howard News Service

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