A woman using a POS screen while checking out a customer.

How to accept checks at your business

Saturday, December 20, 2014

Accepting check payments securely and safely at your company

For businesses of all sizes, it is important to offer multiple payment options for your customers. Payment options typically include a credit card, debit card, or through an Automated Clearing House (ACH) transfer. Check payments is another option which involves a written, dated, and signed check to pay funds to the payee.

As a small business owner, it is necessary to know how to safely accept checks so you can reduce the risk of a returned check or a bad check. These are terms for checks that are dishonored or bounced because of insufficient funds in the account or the non-existence of the account altogether. It is also referred to as a bounced check, hot check, dry check, or a non-sufficient funds (NSF) check. The risk of check fraud remains at an all-time high. In fact, according to a survey released by the American Bankers Association, check fraud accounted for 60% of attempted fraud against deposit accounts in 2018, accounting for more than $1.3 billion in fraud losses that year.

Before we discuss how to safely accept checks at your business, let’s first take a brief look at the history of checks.

Background on check payments

The earliest usage of what resembles a check as we know it today can actually be traced back to the 9th century. By the 15th century, checks began to be used in Europe, and the first checks started cropping up in the United States toward the end of the 17th century, with the first printed versions introduced in 1762.

By the mid-19th century, the use of checks in the United States had grown rapidly and was the primary means of exchange. By the early 1950s, Americans were writing more than 28 million checks a day, and in 2003, more transactions were paid for annually by check than by any other method. In fact, about 37 billion transactions were paid for by check, compared to about 15 billion by debit card.

But with payment cards and ACHs on the rise, check usage had plummeted by 2012. That year, only 20 billion transactions were paid for with checks in the United States, compared to 45 billion by debit card.

While modern payment systems have largely eliminated the need for checks, it is still a common payment method. In fact, according to the Federal Reserve, it was estimated that in 2018 an astonishing 16 billion checks were written, making up about 20% of total annual payments.

Now that we’ve seen a brief history of checks, let’s look at how to safely accept check payments at your business.

How to accept check payments from customers

According to a study in 2012, 3 out of every 1,000 checks were returned unpaid, indicating a small but reasonable risk for check payments. When accepting paper checks at your company, there are several steps you should take in order to ensure the transaction is safe and verifiable. When reviewing a check, look for the following:

  • Identifying information. The payer’s name, street address, and phone number should be pre-printed on the check.
  • Current date. Make sure the date listed on the check is the date of the purchase, not a future or past date.
  • Bank ID numbers. This includes the bank account and routing number.
  • Payee company name. Make sure the name of your business is written correctly.
  • Dollar amount. Make sure this amount matches the amount owed by the payer.
  • Signature. Compare the signature on the check with the signature on the payer’s driver’s license or other identification.

In addition to reviewing the check, your business should have a check acceptance policy in place. Part of this policy can include dollar limits or requirements for identification.

All of this information is applicable when accepting e-check payments as well; and, third party checks should not be accepted, if at all possible.

How to accept check payments using electronic check processing

Electronic check processing (ECP) is a check imaging device that helps approve and accept checks. ECP is able to process e-check payments within 48-72 hours, which is a quicker turnaround than other check processing methods. ECP is the primary method for converting paper checks into ACH transactions.

ECP functions through the initial authorization from the customer, payment set-up (inputting all payment data), submission of request through a payment gateway, and a deposit of the funds. Payment is withdrawn from the customer’s bank account and then deposited into the business’s bank account with a receipt provided to the customer as proof of payment.

Next, let’s look at some pros and cons of accepting checks.

Pros of accepting checks

Although not as common as card or mobile payments, there are key pros to accepting checks for businesses (especially small businesses) to consider:

  • Lower processing fees. Credit and debit cards have higher transaction fees than personal checks since a card processor isn’t required to complete the check transaction.
  • Widen your customer reach. Some customers simply prefer making check payments. Perhaps they don’t want to carry cash or pay the fees associated with a credit card. As such, businesses that are open to receiving checks could widen their customer reach.
  • Increase your B2B sales. Business-to-business (B2B) payments are made between two merchants for goods or services, and paper checks are still the most common way for businesses to achieve this.

Cons of accepting checks

As with any type of payment, there are some drawbacks to paying with checks.

  • It takes longer to get paid. Paper checks require more time to process, sometimes several business days, thereby resulting in a slight delay in receiving payment.
  • Checks can be inconvenient. Not all customers prefer to pay with a check. If you limit customers to only check payments, they might seek business elsewhere due to a lack of convenient payment methods like mobile pay or credit cards.
  • Not all checks are good. As previously mentioned, sometimes checks are returned when there are insufficient funds. When the check bounces, it is sometimes difficult to get in touch with the customer to recover payment.

Next steps

Are you looking for additional support with accepting checks at your business? Do you want to learn new ways to securely accept e-checks?

Heartland is ready to help.

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us.