5 Tips for Collecting on Bad Checks by Dean Kaplan


It may surprise you to learn that in 2019 not only are checkbooks still a thing, but bad checks are still a major problem for many business owners. While a $20 check written at a major grocery store chain won’t cause a lot of havoc to the chain’s bottom line, a $300 check written to an independent antique dealer can be deadly. How can business owners reduce some of the pain of bad checks?


1. Don’t Accept (Most) Checks
As with any bad debt, the easiest way to avoid problems is to avoid the debt. I always advise my clients to make payment as easy as possible, but given the number of easily accessible ATMs and the amount of ways to pay today, there’s simply no reason for most businesses to accept a check. Most individuals actually prefer to use a credit card for large purchases, since they often receive points or other rewards for doing so. People regularly use services like Paypal and Venmo to transfer money electronically. The fact that an individual wants to pay using a check could be a warning sign. If you are going to accept a check, make sure you use a check verification system. If you have a client who wants to pay with a business check on a regular basis, have him or her fill out a credit application first.


2. Call the Bank
If you do accept a bad check, call the bank it was written on before attempting to deposit again. Sometimes, people do simply miscalculate and accidentally write a check before the funds are there. You can call the bank and ask if the funds are available, and if so, redeposit.


3. Call the Customer
Overdraft fees are a big business for banks for a reason A lot of people accidentally write bad checks, or gamble that you won’t deposit the check before the money is there. If this is your first bad check from a customer, assume the best and pick up the phone. When you call the customer, be polite and respectful and be prepared to accept payment via credit card over the phone or an alternative electronic method. If you cannot reach the customer by phone, you should send a certified letter requesting payment within a certain time frame. Make sure to keep a copy of the letter and the receipt. This is as far as I think most business owners should go in personally attempting to collect on the debt. Although business owners who are owed money are not covered by the Fair Debt Collection Protection Acts (FDCPA), different states have different rules when it comes to collecting on debt. Unless you’re trained in finding and recovering money, you don’t want to waste your time or risk your reputation trying to get a reluctant customer to pay. You could wind up creating a bigger headache for yourself.


4. Consider Check Recovery
Even though I’m a debt collector, I actually recommend that small businesses dealing with bad checks consider a check recovery service before a collection agency. A check recovery service can use a call center to monitor the check writer’s account on a daily basis. That way they know when the account has sufficient funds and they can time the redeposit.


Check recovery services are usually free to the business because the call centers are funded by the state-mandated fee that you’re entitled to charge the check writer for writing a bad check. That means you’ll receive the full amount of the check back.


You may also want to call your local District Attorney’s (DA) office. Many DA offices have a bad check restitution program. The program is different from state to state, but usually your customer will be contacted by a collection agency contracted by the DA office. District Attorneys rarely actually investigate or prosecute a bad check writer, especially for a small amount or one-time problem. But, because the agencies can use the DA’s letterhead, the threat of legal action from the state often gets you paid quickly.


5. Call a Collection Agency
Collection agency fees range from 20%-50%, but most reputable companies will only charge you if they can collect. Although you won’t receive the full amount from the check, the way you would if you used a check recovery service, a collection agency can save you valuable time. Collection agencies can also be valuable business partners for businesses, helping you to avoid bad debt and collect quickly when you can’t.


If you accept checks from clients or customers, chances are that eventually you’ll accept a bad one. Doing what you can to minimize the chances of receiving a bad check, and being prepared to recover funds if you do, can help protect the financial health of your business.


Dean Kaplan
Dean Kaplan

By Dean Kaplan


Dean Kaplan is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.

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