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Check Guarantee vs. Check Verification-

What is check guarantee?
How is check guarantee different from check verification?
Why does BetterCheck not offer check guarantee?
Does check guarantee just cost money? - How can I save?

Check guarantee is a service offered by companies like "TeleCheck."  The name of the service offered, "check guarantee," sounds very inviting, but if you are in business to make money and reduce your expenses check guarantee systems like this will only increase your bottom line costs.

Here is how a check guarantee company works. 

Every check you accept as approved, the check guarantee company will "guarantee" it will clear. Often they will require photo identification from the customer, which must be typed into their system like a driver's license number.

If the item is approved from the check guarantee company, this does not mean it really will clear, even thought it is guaranteed. If it does bounce the check guarantee company will then pay you the full face value of the check and any returned item fees if you followed their procedure. 

The check guarantee company will use various systems, including their own negative database of people who wrote bad checks in the past to determine if they will approve the item.  If a customer is trying to pay with a good check, but they are in the negative database from the past, your business will not be able to take the check from the customer.

This means that if your customer every wrote a bad check in the past, or had an unresolved error in the system, even if they have a good check in hand, with a valid account and money in the bank that day, you could not accept the check under the check guarantee program because of the past discrepancy.  In short, a check guarantee company can have you turning away good customers who can pay with no problem.

Don't have your customers saying this: "I wrote a bad check at shop-n-save before I graduated from college in 1998, and now I can't send flowers and pay with a check because my florist using a check guarantee."

The other issue with check guarantee is that it will create a fixed cost for returned checks, but will not save money for the business using it.  The system is designed to make money for the check guarantee company in exchange for a fixed cost.

Here is an example - Lets say you have a typical business where you have a 1% rate of bounced checks or less and you sometimes get hit with a bad check that really burns. Looking at the whole year, that 1% is not so bad.

If you have a check guarantee company, each time they approve a check for you that winds up bouncing, they would pay the full face value plus your bank fee. The drawback and reality is they take this money in advance for every sale by charging a transaction fee and percentage fee called a discount rate.

Because check guarantee is really an insurance policy, and not a guarantee that the checks you deposit will actually clear, the check guarantee company will assess your account based on industry type and charge for all checks. 

Usually, a check guarantee company will charge about 1% to 2% more than your typical bounce rate. 

To determine your bounce rate, they look your industry up on a table that tells them based on how long you have been around, your zip code and  your volume what percentage of bounces  you have.

You can look yourself at your past books and see what actual dollar amount of bad checks you had vs. sales in checks to determine this rate.  If your industry rate was .5% then you would likely be quoted 1.5% to guarantee the checks.  Often there is a transaction fee added to this from $0.25 to $1.00.

Using a service like this, you will wind up paying at least 1% more at the end of the year, and you may be turning away good customers with open and active accounts because your guarantee company considers them too high risk to insure.

If your check sales were $100,000 this  year and you had a 1/2% bounce rate, that means you had $500 in bounced checks.  If you had used a check guarantee service, this $500 would have been paid back to you, but you would have been charged 1.5%, which is $1,500, or $1,000 more than you would have paid if you covered your own bounces.

Check guarantee companies that charge a percentage fee or discount rate and a transaction fee are often using the negative database and a system that verifies the actual account.  Some check guarantee companies use the results from Advanced BetterCheck in their approval process.

Avoid getting overcharged by guarantee companies and use Real-Time bank account verification and check verification from BetterCheck.

Learn more about how check verification is a better system than check guarantee.  Check verification systems will save money and reduce expenses, while check guarantee companies do fix the bad check cost, but increase it by about 1% to 2% rather than reducing it by 50% or more.

Check Verification System - BetterCheck and Advanced BetterCheck


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