Tuesday, November 4, 2008

Checking out — Businesses move toward electronic protection

By Jenny Neyman
Redoubt Reporter

When LaDonna Jenson makes a purchase, she prefers doing it with a check.

“I don’t do debit. I like it in paper so I can see it in front of me,” she said. If she pays with credit or debit, it’s harder to keep track of her account. “Pretty soon you’re going, ‘Oh, it didn’t go through.’”

Paying with a check isn’t a problem where she works, the Flower House in Kenai, but it is at a growing number of businesses om the central Kenai Peninsula that no longer accept checks.

Country Corner restaurant in Kenai is one of them. The restaurant stopped accepting checks in April.

“It’s simple — we’ve had too many people bounce checks, so we decided not to take checks anymore,” said Maria Iverson, who owns the restaurant with her husband, Tim. “At first it was once in a while, then it was like four checks bounced within four months. And it’s such a hassle, trying to get a hold of the customer before we take it any further.”

When they tried to cash a check that bounced, they’d attempt to contact the person who wrote it. Most times it seemed to be an accident and the person would pay what they owed. But it isn’t always easy, or even possible, to find bad check writers.

“We have no idea who they are or what they look like, we have so many people come through here,” Iverson said.

The fee at her bank for submitting a bounced check is only $5 each time the check is run, Iverson said, and the amount checks were written for was relatively low — just the cost of a meal. So it wasn’t a money issue for them, it was more the inconvenience that prompted the sign in the window and at the cash register declaring that checks aren’t allowed.

If Iverson knows the person, she’ll usually accept their check, she said. But for new customers, it’s cash, credit or debit only.

“We actually had a customer place an order to go, he whipped out his check book then saw the sign, then he just had to leave because he didn’t have any cash,” Iverson said. “It’s not that much, but it does hurt us a little.”

Don Haralson, who was at Country Corner on Monday having lunch with his wife, said he didn’t mind the no-check policy.

“I can see why they do it, a lot of places get so many bad checks,” he said. “I don’t ever write checks anyway, except to pay bills. I’ve seen some people writing a check for 50-cent purchases.”

Jenson said it’s rare for the Flower House to get checks that bounce, so checks are still accepted. They don’t get many checks to begin with, since most of their business is done over the phone, with customers submitting credit card numbers. If the Flower House bills someone who has an account, oftentimes they’ll send in a check, but even that is moving more toward credit card transactions, Jensen said.

When they do get bounced checks, it’s usually in November or December.

“It’s the holidays for us,” she said. “They overextend themselves on credit a lot.”

The Hair Stop salon in Soldotna is becoming a rarity these days — a business that only accepts checks or cash, no credit or debit allowed.

Candy Ervin said it’s too expensive to switch to credit and debit. You have to pay for the card reader machine, then you’re charged a transaction fee and interest, she said.

“We’re independently owned, and we’re a co-op, so it’s too expensive for a small business owner,” she said.

Several stylists lease space at The Hair Stop, but each is their own business. So they’d need a credit card machine that could have different accounts for all of them, or they’d have to sort out who gets which transaction.

They don’t get enough bounced checks to be worth the hassle and extra money, Ervin said.

“In the last two years I’ve had one, maybe two bounced checks, and the people came in and paid them. They’re like family around here. You know, we all make mistakes. It just happens,” she said.

Fees for insufficient-fund checks vary by financial institution, said Nancy Usera, senior vice president for corporate development with Alaska USA Federal Credit Union. Costs for credit and debit machines also vary by provider, but they do offer a level of protection to businesses.

“There’s a growing trend among even small retailers to accept debit and credit cards. You go in and get a fast-food lunch and can pay with a debit or credit card. It’s one way for merchants to protect themselves from bad checks,” Usera said.

“Obviously, there’s a huge cost to bad checks associated with it for the merchant, for the individual, and the whole process of checks that end up with insufficient funds is a real problem for a lot of businesses, which is why I think some merchants are going to credit or debit.”

Check your checks
Some bounced checks are accidental, but many more are instances of theft or fraud. The U.S. Department of the Treasury released a study that said there are $1.2 billion dollars worth of bad checks written every day in the United States, said Don Krohn, a former detective with the Anchorage Police Department and now a bank security officer for First National Bank of Alaska. Krohn does seminars on financial security for the central Kenai Peninsula.

“You lose in two ways. Number one, once the bank detects the check is fraudulent, they’re going to come back to you for the money,” he said. “You’re losing merchandise and losing the face value of the check. It’s kind of a two-pronged loss for them, and it can be costly. Especially if they’re selling high-dollar items.”

There are some things businesses can do to protect themselves from bad checks, Krohn said. For one thing, businesses can just not take checks.

“My biggest thing is trying to get people to move toward doing things electronically, because electronically is much safer,” he said.

If you do accept checks, consider spending some money to protect yourself. There are services businesses can subscribe to that screen checks, but those databases only catch checks that have turned up bad before, not first-time offenders, Krohn said.

A better system is one that treats a check like a debit card transaction and transfers money from the payer’s checking account to the business account immediately.

“How much money do you have to lose? What is your threshold before you go out of business? How much do you want spend on these safeguards, or not take checks anymore?” Krohn said.

Krohn doesn’t tell people not to accept checks, he said. It’s been part of U.S. society for so long that it’s hard not to take them. But he said businesses should follow some basic safety procedures:

  • Ask for ID when accepting a check. Compare the signature and personal information — name, address, phone number, etc. — on the ID to the signature and information on the check.
“You want to make sure the person in front of you is the person who owns the check. Make sure the person’s information is on the check. Too often I see people accept the ID and not look at the person at all. People doing that for a living know that and will frequent the businesses that don’t look at that,” he said.

  • Train employees to be on the lookout for suspicious checks.

“It’s indiscriminate purchases,” to look out for, Krohn said. “They buy things that they can pawn and sell to their friends. T¬hey don’t come in and buy diapers or milk for their kids.”

  • Set a policy that checks over a certain amount have to be reviewed by a supervisor.
“Don’t let an employee have to deal with a really large purchase without a supervisor coming in and assisting, because it can be somewhat unnerving for somebody to be taking a large check from somebody that’s overbearing, or maybe they don’t have the confidence in checking the items that they should be checking,” he said. “Say, ‘Anything over such and such dollar amount, I have to review.’”

  • It’s also important to keep your checks from being stolen and passed off fraudulently, Krohn said. Keep your checks in a secure location. Put your information on them, like address and phone number, so a thief can’t write it in on their own. And don’t be too trusting, of anyone.

“A major portion of check theft and fraud and credit card fraud comes from a family member stealing it,” Krohn said.

  • Keep a close eye on your accounts. Check them every day. If there’s a problem, it’s better to catch it immediately, rather than waiting for the bank statement in 30 days, at which point your money could be gone.

  • Take advantage of bank services. With positive pay, businesses can send their bank a list of check numbers that are OK to clear every day, and the bank only allows the transfer of funds for those specific checks. With reverse positive pay, you get a list of pending transactions every day looking to take money out of your account that you can approve, or not.

  • Be smart in electronic banking. Don’t keep all your money in a checking account. Keep it in savings and only transfer out what you need for working capital. And ask your bank about ACH (automatic clearinghouse) filters.

An ACH transaction is what happens if you pay a bill electronically by telling it to transfer money out of your bank account. If someone fraudulently obtains your account information, they could drain your account through an ACH transaction unless your account is protected from it.

“All financial institutions have these tools to protect against that, and if you don’t go out and try to prevent somebody from stealing your money, you can’t expect somebody to always be standing there watching out for what you’re doing,” Krohn said.

Krohn said he’s available to give seminars on financial security. Anyone interested can contact him at dkrohn@fnbalaska.com.

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