Many collection companies offer you expensive scanning equipment for “check verification”. The check is swiped and the check information is compared to a negative database comprised of bad check writers. This provides you with a false sense of security. If a match is not found, you assume the check presented for payment is good. But perhaps the check writer is writing his first bad check; is listed on another negative database (there are many); or is using various new checking accounts to float bad checks. Check verification does not solve the bad check problem!
Yet, collection companies like to push these services on you knowing 79 out of every 100 returned checks will be NSF checks and they will be able to collect up to 89% of those checks easily. They also collect a state allowable fee which they keep while happily charging you the monthly equipment cost and the swipe charges. What a great deal! Sounds like they are making a lot of money on you!
But what about those non-NSF checks such as “Stop Payment”; “No Account Found”; “Account Closed” and other returned checks? Those other returned checks, we like to refer to as Hard Money checks, account for the remaining 21 out of every 100 returned checks.
Selling or leasing you check verification equipment has become so lucrative today that most large check collection companies concentrate on the collection of your NSF checks and suggest you write-off your Hard Money checks. They do their best to collect them for you by out-sourcing the collection of these checks to small collection agencies on a pre-negotiated contract basis.
Knowing the industry average for collecting Hard Money checks is approximately 12%, when your collection company reports to you the collection results on Hard Money checks, they mark up the pre-negotiated collection cost to include their fees and then pass the results on to you. Under this arrangement you may be charged as much as 40% of the face amount of the Hard Money checks collected.
