Check fraud refers to several kinds of scams that deal with paying for goods with a bad check. This may involve circumstances in which someone has made alterations to the payee’s name or amount, forged a signature, or drew upon a closed account. The check itself may even be counterfeit.
While it might be easier for a business to just stop accepting checks, it is often necessary because a good number of customers still prefer using them for business expenses. Nowadays, services such as an online check writer exist to help businesses find an easy and reliable solution. Yet, as technology continues to improve, it can be more difficult than ever to determine the validity of a physical check, especially upon the first examination.
Whether you’re avoiding check fraud as a company or individually, it is important to understand what check fraud entails, and what you can do to avoid these problems.
Types Of Check Fraud
Certain types of check fraud have become more difficult for scammers due to the existence of electronic check approval. However, this increases counterfeit checks because technology makes it easier to produce checks that strongly resemble an original.
This list, although inexhaustive, addresses four forms of check fraud:
Check floating was popular before the existence of debit cards. Although it is now being used substantially less than before, this type of fraud is still a threat. This involves a person writing a check that their bank account cannot support.
Many use this check-writing technique as a version of a payday loan; they issue a check for goods and services a few days before a deposit is sent into their account, expecting (or hoping) that those funds will arrive before the check is cashed.
As a result, many people who engage in check floating are not attempting to steal – they intend to pay for the items as soon as that money is available. However, this is a risky proposition, and whenever it doesn’t work out as intended, it can cause problems for the business.
Initially, it was easy to identify fake checks, but that is no longer the case. These days, it’s almost impossible to spot the difference between an altered check crafted by a desktop computer using a good color printer and one issued by your own business.
Note that virtually any kind of check can be altered, so don’t be deceived into thinking government-issued checks are always authentic. Even cashier’s checks can be fake. Make sure to give each check the same amount of scrutinization to protect yourself.
Perpetrators use altered checks through diverse means to steal funds from your account. This may not be a direct theft; sometimes they use these checks to purchase merchandise, leaving business owners footing the bill. In other circumstances, their plan is much more intricate, involving claims of overpayments and requests for cashback.
These nefarious strategies can result in business owners losing thousands of dollars.
What is far more likely to pass scrutiny than fake checks? Authentic checks that have been stolen.
Check thieves also try to use stolen checks to pay for goods and services and receive cash back. However, if it can be proven that the checks were stolen, the bank will likely send back the deposit.
If your business uses checks, there’s always the risk of having your checks stolen by immoral workers. A break-in at your business can also result in a serious case of check fraud.
Although check-kiting has a greater effect on financial institutions, other businesses can suffer from this behavior as well.
Kiting is a criminal act that involves creating accounts at two different banks and floating checks between them, being aware that there aren’t sufficient funds at the two banks. In short, the person writes a check from an account with insufficient funds, then deposits it in a second bank. During the interim floating period, they withdraw the money deposited in the secondary account before the bad check has a chance to clear.
Check-kiting can affect your business if you offer cashback during purchase. A customer buys goods with a check and returns the goods for a cash refund. With cash in hand, they leave – and then their check fails to clear, leaving the business on the hook.
How You Can Avoid Check Fraud
Fortunately, there are options to reduce the chance that you suffer from check-fraud schemes:
Always Check For ID Before Accepting A Check
The basic rule for accepting checks is to always verify the ID of the client issuing the check. The ID should correlate with the name on the check; if it doesn’t, insist on a different method of payment.
Do not allow any exceptions to this rule. Additionally, ensure that your workers or anyone else who accepts checks on your behalf strictly adhere to these protocols.
Employ Alternative Bill-Paying Forms
Many businesses accept direct deposit for bill payments or ACH payments, which eliminates the necessity of issuing business checks. It also eliminates the danger of misused or stolen checks.
Closely Examine Checks
Before you accept a check, make sure you screen it thoroughly. Check if the numbers look genuine and if the coloring seems off. If a check appears suspicious, check the routing number to confirm if it is real. You can also confirm the check’s authenticity with the bank where the check has been issued.
If you can’t confirm that the check is valid, do not accept it. Losing potentially thousands of dollars is far worse than delaying a transaction.
Be Wary Of Cashier’s Checks
The assumption is often that all cashier’s checks are authentic. Sadly, cashier’s checks can also be replicated, leaving you at risk if you do not analyze the check as you would any other.
A real cashier’s check should always show the bank’s name at the top, along with a phone number. In every case, the payee’s name should be printed on it.
However, if in doubt, don’t hesitate to call the branch of the bank indicated on the cashier’s check to confirm its authenticity.
Lock Up Your Checks
Numerous check scams happen due to stolen or misused checks. With advanced technology, thieves can easily mass-produce these checks.
Hence, if you use checks for bill payment, ensure they can only be accessed by permitted employees and should be kept in a safe within a hidden location. Always pay careful attention to check numbers and promptly probe any out-of-sequence check, as it could be a tell for possible theft.
Reconcile Bank Statements Immediately
The perfect way for preliminary foul detection is to immediately resolve the reconciliation process with the bank. Discovering check fraud about five months after the occurrence will make it more complicated to apprehend the criminal and likely provide them plenty of time to further perpetuate their crime.
If you are a victim of this fraud, there is a low probability that the bank in question will refund the stolen money.
The Bottom Line
Although the fraud-proof way to avoid check fraud is to stop transacting with checks altogether, it may not be feasible for your business. Utilizing reliable online check printing companies might be a safer bet but it still carries some risks.
If you cannot avoid accepting checks, ensure you strictly comply with safety precautions to limit opportunities for foul play. With appropriate diligence, you can avoid check fraud entirely.