How to Reduce Fraud and Increase Profits by Using Electronic Check Verification

"How to Reduce Fraud and Increase Profits by Using Electronic Check Verification"

- By Jeff Haefner

Remember the days, standing in line at the market and seeing a bulletin board behind the cash register with bad checks tacked to it?

As a child, standing in line next to my mom or dad I used to look at that board and think "how awful for those people to have their names up there." I'm sure others thought "How awful for those people to have written bad checks." Both are valid concerns, especially as a retailer.

What if you could eliminate both the unfortunate customer experience of having written a bad check and the cost to your business of not collecting the funds for items purchased? Not to mention the NSF charges and timely paperwork to reconcile the bad checks.

What if you could completely eliminate, or seriously reduce, the number of bad checks that pass through your business?
What if you could collect on 80% of all bad checks for free?
What if the company that verified the check paid you 100% of all verified checks that bounced?
What if you could eliminate the unfortunate customer service task of collecting on bad checks?
What if you could speed up your current check verification system to provide faster, better customer service?

That's where today's electronic check verification systems can help. Despite the fact that according to the Federal Reserve Board the use of checks as a payment system is on the decline, more than 70 billion checks are still tendered each year. That number is too big for most retailers to ignore. Clearly, the more checks you're able to process successfully, the higher your profits.

How do Electronic Check Verification Systems Work?

There are actually two main types of verification services. One common service offers to compare the check to a negative database of bad check records. This type of system actually started about 20 years ago and even with the delays of the earlier system, merchants saw a significant decline in bad checks.

Today, thanks to faster POS software systems and electronic check readers, many companies now offer instant electronic access to their vast databases to compare checks. In many cases you're able to customize the criteria that the checks are evaluated by, thus allowing you to determine the level of risk that you are willing to take.

The next type of verification system that is gaining in popularity is real time verification where in addition to comparing the check to a database, the client's bank account is immediately accessed to determine sufficient funds.

But wait there's more!

Earlier I asked you "what if you could collect on 80% of your bad checks." In addition to instant check verification, many services offer collections on verified checks that bounce and guarantee a percentage of collection up to 80%. Some even offer to pay you 100% of all verified checks that bounce.

These services usually employ traditional collection practices including phone calls and letters but they have the additional ability to electronically represent the checks to the bank for payment when the account is more likely to have the necessary funds. The 1st and the 15th of the month are common times for checks to be represented because they're a common payday.

So... How do you get Electronic Check Verification for Your Business?

If you already have Point of Sale software that you are happy with, then your first step is to find out which check verification systems are compatible with your current system. A simple phone call to your customer service representative should give you your answer.

Additionally, some POS software manufacturers offer integrated Check Verification services meaning that you don't have to pay for the programming fees that other companies may charge.

A check reader is optional but a point of sale computer is required. However, without a check reader the keying of the check's information into your terminal will be necessary. You may want to consider purchasing a check reader to make the verification process more efficient for both you and the customer. Generally, a check reader costs less than $400 and quickly earns back the cost of investment.

The following companies manufacture Check Readers:
http://www.magtek.com
http://www.hhp.com
http://www.verifone.com

Once you've determined which check verification companies are compatible with your POS system consider the following:

Look for the largest national negative database possible
Make sure that the database has a substantial number of merchants in your geographic area.
Look for a verification system that provides not just negative data, but also positive data.
Look for a verification system that has customizable risk assessment tools and utilizes "Rule Sets"; these are programs that analyze variables to screen out adverse risks as defined for specific business types.
Look for the lowest transaction fee, monthly minimum and statement fees.
Look for a low cost per transaction. Verification transactions usually cost around $0.25/per item.

If you currently do not have Point of Sale Software you're not out of luck. However, your options are limited to phone and internet verification systems, which simply connect your check reader, provided by your merchant services provider, via phone line or modem. They operate much like a credit card reader would. Your customer's check information is read electronically and then compared to a negative database and/or sufficient funds are verified in their account.

The benefit to having your check verification system tied directly into a POS system is that the transactions, information, and all necessary tracking of the accounts are done automatically, thus eliminating the many steps of paperwork that would still be required if you operated a check verification system independent of a POS software system. Additionally, you're adding the extra security that your customers deserve by having your transactions, check verification included, run through a secure point of sale software system. The following companies are among the largest Check Verification services in the country:

If you do not currently have a point of sale system for your business it may be beneficial to consider one. POS software is, at its simplest, a computer program that takes the place of a simple cash register. All sales are made through the computer. You enter the information, sales and transactions, and it records and tracks everything, including bounced checks and recovered funds. They don't have to cost much and leasing is an option. For more information on purchasing a POS software product visit:
http://www.possoftwareguide.com

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To Your Success!

Jeff Haefner

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