Tuesday, March 8, 2011
Problems with Bad Checks
Although you’re filled with joy (and maybe a tiny bit of skepticism) when you hear “the check is in the mail,” you know that checks don’t always clear the bank. You must be diligent and monitor the flow of checks through your business. Everybody receives a bad check now and then, but how you handle it can make a big difference in your cash flow and bottom line.
Receiving a bad check isn’t a small infraction. It’s a major breakdown of the financial relationship and in your ability to trust your customer. Because the extension of credit is based on trust, bouncing a check goes to the core of the business relationship.
Communicate with your customer immediately upon receipt of a bounced check. Hang on the phone for 20 minutes if you have to or go knock on his door. Express in no uncertain terms that the check has to be replaced with real money within 24 hours or further action will be taken.
If your customer admits the check isn’t going to clear, even if you deposit it a second time, tell him, “I’ll have someone at your door this afternoon to pick up replacement cash or a cashier’s check. What time will it be ready?” Then contact an overnight courier and instruct it to pick up the cash or cashier’s check at the appointed time. When you employ a courier, a cashier’s check is preferable to cash.
Make sure you put out the word to your staff about the change in the customer’s credit status: Anybody who interacts with the offending customer, both at the sales desk and in the credit department, must know that the customer is on cash or its equivalent only.
When a customer makes good on a bad check, you may choose to be forgiving, but only the first time. A repeat offender should be notified that its checks will no longer be accepted. Restrict repeat offenders to cash, money orders, or cashier’s checks.
Stay tuned to this Blog for more detailed information in the future on handling different types of bad checks, including NSF, stop payment, closed account checks (or, if you need the information now, tune into the chapter on bad checks in Credit and Collections Kit for Dummies by clicking on the book cover at the bottom of this blog).