Project into the near future and envision a time with “real time” checking – when merchants have the ability to know if the customer has sufficient funds in his/her banking account to cover costs. Like a debit card, the check amount will be immediately debited and transferred. Merchants espouse this new way of doing business, no longer assuming a risk with each check transaction.

While waiting for “real time” checking, business owners must formulate a policy for dealing with checks. Let’s consider and weigh the options:

Refusal to take checks – Many business owners shy away from accepting checks. Indeed, “no checks allowed” signs adorn many retail establishments. On a positive note, these merchants avoid the hassles inherent in taking checks. They do not have to confront NSF checks and the concomitant effort needed to collect on those owed funds. Even if the checks are good, they still would have to apportion time for their accounting process, making deposit slips and taking them to the bank. Sounds like a chore, doesn’t it?

However, by not accepting checks, merchants lose a sizeable segment of potential clients. Many customers do not have credit capabilities, and can only pay with checks. Others are “maxed out” on their credit cards and forced to use other types of payments. Allowing check payments broadens the total customer base, inviting check-writing folks to assume the role of buyer.

The Green Sheet, a well-known and respected financial services publication, estimates that a retail establishment can increase its profit margin by 30% if checks are accepted. Retail merchants who have a host of expenses cannot afford to lose any profit.

Assuming the business accepts checks, an owner may opt for any of the following alternatives:

Check guarantee – These companies purportedly ensure than the merchant will be reimbursed if any check is NSF. This works great in theory and can even work in practice on occasion. But, too many times, the merchant pays an exorbitant amount for coverage (hey, the guarantee companies are in business to make money!) or may not be reimbursed if some vital information is left off the check (e.g., driver’s license). Still others pay the merchant the face value of the check at first only to withdraw the money out of the account if they cannot collect from the client.

Accept checks without any protection – While it is not exactly like playing “Russian Roulette,” check-accepting merchants who do not have any protection in place may inevitably be hit with a bad check. (Fortunately, less than 2% of the checks that are presented in retail stores are bad.) What does the merchant do now? He/she must invest time and money trying to recover it, either calling the customer directly or hiring a collection agency to do so. This cuts into cash flow and the “bottom line.” It behooves these merchants to have some protection in place, though there really exists no fail-proof solution.

Accept checks with check verification – As health insurance serves to mitigate medical expenses, check verification serves as a type of insurance to lower the expenses of doing business. Most very successful brick-and-mortar establishments (think Walmart) accept checks because they ultimately generate more business and profit. However, the inherent check-acceptance problem, specifically receiving bad checks, still needs to be addressed.

While check verification cannot ensure that the customer has sufficient funds to cover the product/service cost (for all intents and purposes, eliminating NSF checks), it can dramatically reduce the number of bad checks an owner receives. How does this work?

Check verification simply provides a database of bad check writers (i.e., their bank account information) to compare against any check submitted to a business. If the account listed on that database, an owner may consider this “code red” and not process the payment. The owner can simply ask for an alternative form of payment. Of course, such a database must be extensive and continuously updated.

Another way of viewing check verification is as a “look-out.” It has the capacity to warn a business owner about potential dangers of accepting a specific check. As it is a rather inexpensive service, it seems that it should be part of any business plan and process. Check out verification as verification will “out” checks – those that may have bounced.

Check Guarantee is a program in which you are guaranteed to be paid on your checks. It is a type of insurance provided to merchants. A fee is charged to the merchant in exchange for the service of paying the merchant on any checks that are returned. There’s no need to worry about accepting checks or collection on returned checks. Usually, the cost for this solution is about the same as credit card acceptance, however, some may offer it for a lower price. Check with your Merchant Account Provider for further details.

How Check Guarantee works is each check that you accept is verified. The check guarantee company lets you know whether the check writer has any outstanding unpaid bad checks. This is completed by running the check through a check reader or keying the check information and/or check writer into a terminal. If it shows that there are no outstanding checks in the system, the check guarantee company issues approval or an authorization number which means you are guaranteed payment for that particular check. You are also responsible for getting certain information about the check writer such as driver’s license number and phone numbers.

Check Guarantee has been around for a while and it’s nothing new; the Guarantee Processor charges the merchant a Discount Fee (percentage) on ALL checks they accept, usually around 1.50% (or in the range), and agrees to cover all returned checks, provided that the merchant has followed the Processor’s Check Acceptance Rules. The fee scale varies by merchant type and the associated risk, but is rarely lower than 0.99%. A per item Transaction fee of around $0.15 to $0.35 is also charged. There IS often times a Monthly Minimum fee and always a Statement Fee, especially when dealing with retail check processing accounts. There may be a sign up/application fee, and also a programming fee to put the service on the merchant’s Point of Sale Terminal (if applicable). A point of sale terminal and check reader is required if you’re processing using a retail hardware solution – but there are also online/virtual terminal solutions that are now available if this is what your business needs instead.

Check Guarantee with Conversion means that not on is the check Guaranteed but it is also “converted” into electronic funds, this means that you do not have to deposit the check into your checking account; the funds will be deposited into your checking account for you automatically.

“negative database” of “bad check writers”. This is done at the point of sale when the customer presents a check as payment. This service is performed using a point of sale terminal (or a real-time internet process) to access one of these large negative databases and compare the new transaction against the list. If the customer has a history of bad checks, the transaction will be declined. If they are not in the database for bounced checks, they are approved. Verification transactions usually cost around $0.15 – $0.35/per item. There may be a sign up/application fee, and also a programming fee to put the service on the merchant’s Point of Sale Terminal. There IS often times a Monthly Minimum fee and always a Statement Fee, especially when dealing with retail check processing accounts. A point of sale terminal is required if you’re processing using a retail hardware solution and a check reader is optional – but there are also online/virtual terminal solutions that are now available if this is what your business needs instead.

When accepting checks and debit cards a verification service should be all that you need. Check guarantee, in addition to using a verification service can actually cost you more money to process. Unless you yield a high sales volume each month to cover the extra cost for using a guarantee service, just stick with verification.

Check Verification with Conversion means that not on is the check Verified but it is also “converted” into electronic funds, this means that you do not have to deposit the check into your checking account; the funds will be deposited into your checking account for you automatically.

Check guarantee/verification is a benefit to any retail-type business that accepts checks. If your business cannot afford check losses, you will want to consider getting the check guarantee solution.

Look for the most reasonable monthly minimums and statement fee.

Look for the most payment times per month possible, this varies from one to four times per month.

Look for online reporting.

Look for the most liberal check acceptance policy out there.

Make note of which checks ARE NOT COVERED under the program.

Consider stop payment coverage.

Try to get a system with a check reader that can automate the verification process (if you’re using retail hardware).

Find out if the provider has a set number of “bad checks” that they will consider before labeling your account as high risk.

Look for the largest National Negative Database possible, there are fewer than 10 companies that are really big

Make sure that the Negative Database has a large following of merchants in your geographic region

Look for a verification system that provides not just negative data, but also positive data

Look for a verification system that has sophisticated “Rule Sets”; these are programs that use logic to analyze many variable to screen out adverse risks as defined for specific business types

Look for online reporting

Try to get a system with a check reader that can automate the verification process (if you’re using retail hardware).

As we continue to surge forward on the coattails of the “technology revolution,” many business folks and entrepreneurs have grasped the concept that personal fortunes may be acquired through the avenue of modern machinery (which must be tweaked in just the right way). Consider, for example, those who have learned how to turn their computers into mighty cash machines. Indeed, those who can effectively utilize and/or market technological gadgets or devices place themselves in a position of watching their earnings take off like fireworks in July.

One such apparatus that can unlock dormant profits (and make life a lot easier) for business owners is the rather ingenious check conversion machine. Envision a device that is similar in nature to credit card terminals. (Manual imprinters are almost extinct!) In the same fashion that a credit card is run through a terminal, a paper check may now run through a check reader (or, what is known in the world of commerce, as a check conversion machine).

The paper check becomes an electronic item at the point of sale as the MICR (Magnetic Ink Character Recognition) information is captured and the amount is entered on a terminal keypad. The transaction is electronically transferred through the Automated Clearing House (ACH) system and funds are automatically transferred from the customer’s account to the business owner’s account usually within three to four banking days.

The increasingly popular check conversion machine offered by United Bank Card Merchant Account (UBCMA) offers several advantages over competitive models. The UBCMA model uses verification to ensure that a check writer is not on a negative database of bad check writers. While there exists no guarantee that the check will not bounce, it dramatically reduces the chances of such an occurrence. Moreover, an auto collect feature handles those checks that do “fall through the cracks” and bounce. This feature attempts to retrieve the money electronically two additional times, if necessary. This “behind the scenes” recovery option seems preferable over traditional collection procedures entailing phone calls and letters.

In reviewing the multiple benefits of check conversion, it seems time to “automate” paper checks. In this way, a business owner does not have to complete any more deposit slips or go to a bank to process payment. The owner can get money quicker and more efficiently and even expedite the collection process as NSF and other returned items are discovered faster. Moreover, there exists check verification to reduce exposure to the intentional bad check writer. And finally, accepting checks in this way is generally much cheaper than credit card processing.

In the not too distant future, check conversion machines will take its rightful place along credit card terminals in most business operations. In the incessant cost vs. benefit analysis, the collective mindset of business owners will be converted to employing electronic check conversion with its built-in profit potential.