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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