Money Matters

Preventing Bad Checks

Gathering adequate information helps you spot bad checks – and recover funds when checks bounce.

If you’re worried about getting a bad check, ask for another form of payment. “To protect yourself, encourage the use of credit cards,” says Ahlquist. “Another thing salons can do is set a limit for checks, say under $50 or $70, and anything over that amount must be paid for with a credit card or cash. That limits your loss.”

IF THE CHECK’S BAD

Everyone bounces a check occasionally, and most people want to make the check good as quickly as possible. “When we get a check back from the bank, we call the customer right away,” says Shanks. “The customers are usually appalled that the check bounced, and the funds are made up within a week.” You can let the customer know you’re going to redeposit the check, and you can call the customer’s bank to ask if sufficient funds are available in the account before you redeposit the check.

If the check comes back a second time, contact the client again and ask that she come to the salon with cash or a credit card to make a good payment. Most customers whose checks bounce twice solve the problem this way, and rarely is any further action necessary.

If you get the check back again or the client is uncooperative, you have to take stronger action. “You have two choices,” says Ahlquist. “You can recover the funds yourself or you can use a check recovery service,” If you decide to recover the funds yourself, the first step is to write a letter to the client.

“Develop a form letter saying the check has been sent through the bank and declined. Tell the client you want immediate payment, stating the law and its code number. Give the client a time frame to get hold of you, usually 48 hours. If the check is paid by then, you will take no further action. Then, send the letter by registered mail,” advises Ahlquist. “If there has been no response after 48 hours, take the receipt to the police. The police will issue a warrant for the person and when they catch the customer, you go to small claims court to recover the money.”

CHECK RECOVERY SERVICES

Ahlquist recommends using a check recovery service. “Most good-sized cities have them,” says Ahlquist. “I recommend them because most salons are not diligent, and you must stay on top of a bad check.”

Your district attorney’s office may have a Bad Check Enforcement Program for businesses that want to recover funds lost from a bad check. The district attorney’s office usually requires that a business owner submit the check to the bank twice or requires the face value of the check to be a minimum amount. Your local Chamber of Commerce will have the details.

STAY ON IT

The bottom line for recovering funds is to be prompt and thorough in dealing with bounced checks. It isn’t necessary to take a tough stance about accepting checks – but it is necessary to be tough when you get a bad check from an uncooperative customer. Whether you recover the funds yourself or have someone else do it for you, be firm. The business that earns the reputation for being easy-going about a bad check will soon have plenty to worry about.

What to look for when accepting checks:

  1. Must be personalized – complete name and address preprinted by the bank (no P.O. boxes)
  2. Date must be current, never post dated or more than 30 days old.
  3. Bank ID #
  4. Payee must be your company.
  5. Written and numerical amounts must be the same.
  6. Bank name and address must be printed on check.
  7. Bank and customer computer numbers must be printed on check.
  8. Customer signature – must be signed in your presence.
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