Outwitting Bad Check Passers: A Modern Guide

The Current State of Check Usage

Checks aren't dead-but their use has changed dramatically. Today's check landscape:

• Check usage has dropped over 80% since 2000, but approximately 3-4 billion checks are still written annually in the U.S.
• Checks remain common for large purchases, B2B transactions, rent payments, and among certain demographics
• Most checks are now processed electronically rather than as paper
• Remote deposit capture via mobile apps has created new fraud opportunities
• Despite declining volume, check fraud losses exceed $1 billion annually

Modern Types of Check Fraud

Check fraud has evolved with technology. Understanding current schemes helps you recognize and prevent them:

1. Forged and Counterfeit Checks

Sophisticated computer equipment and high-quality printers make it easier than ever to create convincing fake checks. Modern counterfeiters:

• Use desktop publishing software to create realistic check stock
• Steal legitimate check designs from social media photos or discarded checks
• Purchase blank check stock online that looks genuine
• Use real routing numbers from legitimate banks to pass automated verification

2. Check Washing

This old technique remains prevalent. Thieves steal checks from mailboxes, then use common chemicals (acetone, bleach) to erase the ink. They rewrite the check for a higher amount and change the payee. Warning signs:

• Check appears stained or discolored
• Writing looks faded or has a different ink shade in certain areas
• Paper texture feels different or shows chemical damage
• Background patterns or security features appear compromised

3. Altered Checks

Rather than complete forgery, criminals modify legitimate checks:

• Changing the dollar amount (especially adding digits)
• Altering the payee name
• Adding words or numbers to increase the amount
• Modifying dates to extend validity

4. Stolen Check Schemes

These involve legitimate checks stolen from various sources:

• Payroll checks: Stolen from employees or created using stolen company check stock
• Government checks: Social Security, tax refunds, veterans benefits stolen from mailboxes
• Business checks: Stolen during burglaries or from mail
• Personal checks: Taken from checkbooks during thefts

5. Account Takeover

Criminals gain access to legitimate bank accounts through:

• Phishing schemes that steal online banking credentials
• Data breaches exposing account information
• Social engineering targeting bank employees
• They then write checks against the compromised account

6. Remote Deposit Capture Fraud

Mobile deposit apps have created new opportunities for check fraud:

• Depositing the same check multiple times at different banks
• Depositing altered digital images of checks
• Creating fake checks and depositing via mobile apps
• Exploiting delays in bank processing systems

Types of Checks You May Encounter

Understanding different check types helps you assess risk appropriately:

Personal Checks

Written by individuals from their own checking accounts. These should be:

• Pre-printed with the account holder's name and address
• Made payable directly to your business
• For the exact amount of the purchase (no cash back)
• Numbered sequentially (be cautious with numbers under 500)

Two-Party Checks

Recommendation: Do not accept these. Two-party checks (where someone signs over another person's check to you) carry extreme risk:

• The original maker can stop payment
• Either signature could be forged
• You're twice removed from the actual account holder
• Collection becomes nearly impossible if the check is bad

Payroll Checks

Issued by employers to employees. Legitimate payroll checks typically:

• Are printed (not handwritten) with company name and logo
• Have "PAYROLL" printed on them
• Include employee name, check number, and often stub information
• Are drawn on business accounts, sometimes at payroll processing companies

Government Checks

These include Social Security benefits, tax refunds, veterans benefits, and government payroll. Special considerations:

• Government checks are frequently stolen from mailboxes
• Many banks refuse to cash government checks unless the person has an account
• Best practice: Only accept government checks from known customers or require account verification
• Be particularly suspicious if someone has multiple government checks

Cashier's Checks and Money Orders

While traditionally considered safe, these are now commonly counterfeited:

• High-quality fakes are difficult to detect visually
• Verify directly with the issuing institution before accepting large amounts
• Be suspicious of cashier's checks used in person (why wouldn't they use a regular payment method?)
• Common in overpayment scams where the "buyer" asks you to refund the difference

Business Checks

Checks from business accounts should have:

• Printed company name, address, and logo
• Professional appearance with security features
• Sequential numbering
• If accepting B2B checks, verify the business exists and the signer is authorized

Traveler's Checks

Traveler's checks were once common but are now rarely used, replaced by credit cards and ATM access. If you do encounter them:

• They have preprinted amounts (usually round figures: $20, $50, $100)
• The traveler signs once when purchasing and must countersign in your presence
• Major issuers include American Express and Visa (though many have discontinued them)
• Verify the two signatures match
• Be cautious-counterfeit traveler's checks exist and are hard to verify without contacting the issuer
• Consider calling the issuer's verification number printed on the check for amounts over $100
• Modern reality: If someone presents traveler's checks, question why they're not using a credit card or ATM-it may be legitimate (elderly traveler, gift) but is unusual enough to warrant extra verification

Starter Checks and Counter Checks

Do not accept these. Starter checks (temporary checks given when opening accounts) and counter checks (blank forms from banks) have:

• No printed name or address
• No check number or very low numbers
• Higher fraud rates than standard checks
• Modern banking allows debit cards immediately-there's no legitimate reason to use starter checks at retail

Examining Checks: Key Items to Verify

Before accepting any check, examine these critical elements:

1. Date

• Must be current (today's date or within the past few days)
• Reject post-dated checks (dated in the future)
• Reject checks more than 6 months old (they're considered "stale")
• Verify day, month, and year are all correct
• Watch for alterations-date area is commonly modified

2. Amount

• Numerical amount must match written amount exactly
• If they don't match, banks honor the written amount-or may reject the check entirely
• Look for spacing that suggests added digits
• The written amount should start at the far left with no room to add words
• Be suspicious of checks for unusual amounts (like $447.83) unless the purchase total matches

3. Payee Line

• Check must be made payable to your business
• Name should match your legal business name or registered DBA
• No alterations or corrections on the payee line
• Line should be completely filled with no room to add names

4. Signature

• Must be signed in ink (never accept unsigned checks)
• Signature should appear natural, not shaky or traced
• Will be compared to ID signature
• Should match style of other handwriting on check
• No signature stamps unless previously verified with account holder

5. Check Number and Sequence

• Pre-printed check numbers should be present
• Be extra cautious with numbers under 500 (new accounts have higher fraud rates)
• Numbers under 101 suggest starter checks-don't accept
• Very high numbers (5000+) from personal accounts may indicate long-term customer (lower risk)
• Missing check numbers are a major red flag

6. Bank Information

• Bank name, branch, city, and state should be clearly printed
• Routing number (9 digits at bottom left) should be present
• Account number should be pre-printed (not handwritten)
• MICR (Magnetic Ink Character Recognition) encoding at bottom should be clear and professionally printed
• For non-local banks, require additional identification and verification

7. Security Features

Modern checks include various security features. Look for:

• Watermarks visible when held up to light
• Microprinting (tiny text that appears blurred if copied)
• Security warnings on the back ("This document contains security features")
• Chemical-reactive paper that shows "VOID" if altered
• Holographic images or heat-sensitive ink
• Colored or patterned backgrounds that resist copying

8. Overall Appearance

Trust your instincts. Reject checks that have:

• Erasures, white-out, or cross-outs
• Stains or discoloration suggesting chemical washing
• Smudged printing or blurry text
• Handwritten routing or account numbers
• Misaligned printing
• Perforation marks suggesting they were torn from a book rather than professionally printed
• Unusual paper quality (too thin, too thick, wrong texture)

Identification Requirements

Proper identification is your best defense against bad checks. Even with perfect-looking checks, you must verify the person presenting it is authorized to use the account.

Acceptable Forms of Identification

Primary ID (accept these):

• Driver's license or state ID card - Must be current, with photo. Check expiration date and look for security features (holograms, microprinting). Many states now offer Real ID compliant licenses with enhanced security.
• U.S. Passport or Passport Card - Government-issued with photo and signature
• Military ID - Active duty or veteran ID cards with photo
• Mobile driver's licenses (mDL) - Some states now offer digital licenses on smartphones with enhanced security and verification

Secondary ID (use in combination with another form):

• Major credit cards (with signature panel signed)
• Employee ID badges with photo from recognized employers
• Professional licenses (medical, legal, etc.) with photo

Unacceptable Forms of "Identification"

Do not accept these as primary identification:

• Social Security cards (no photo, easily forged)
• Birth certificates (no photo, easily forged)
• Business cards
• Club or organization membership cards
• Unsigned credit cards
• Library cards
• Voter registration cards
• Work permits without photo
• Letters or mail addressed to the person
• Insurance cards
• Bank books or statements

Recommended ID Policy

Establish a clear written policy:

1. Require government-issued photo ID for all checks (driver's license, passport, or military ID)
2. For checks over your set threshold (e.g., $100): Require two forms of ID
3. Record ID information on the check:
   • ID type and state
   • ID number (in some states-check local laws)
   • Expiration date of ID
   • Customer's phone number and address
4. For out-of-state checks: Require local address and phone number verification

Comparing Signatures and Photos

The ID verification isn't complete until you:

1. Compare the photo: Does the person presenting the check match the ID photo? Look at:
   • Facial features, eye color, height listed
   • Approximate age (is the person 25 but the ID shows someone who should be 50?)
   • Gender markers
2. Compare signatures: The signature on the check should closely match the signature on the ID
   • Look at writing style, letter formation, slant
   • Don't expect perfect matches, but obvious differences are red flags
   • Shaky or traced signatures suggest forgery
3. Check ID authenticity: Feel for raised text, look for holograms, verify the ID looks professionally made

Special Situations

If a customer doesn't have ID:

• Politely decline the check
• Offer alternative payment methods (card, cash, mobile payment)
• For regular customers, you might consider exceptions-but document this policy carefully

If the ID seems fake:

• Trust your instincts-if something feels wrong, decline the check
• You can politely say "I apologize, but our policy requires checks to be backed by government-issued ID that I can verify"
• Don't accuse the customer of fraud, just stick to your policy
• If strongly suspicious, note details and report to police after the person leaves

Setting Check Acceptance Policies

Clear policies protect you and ensure consistent treatment of all customers:

Dollar Limits

• Set a maximum check amount based on your average sale (common limits: $250-$500 for retail, higher for specialized goods)
• Checks for exact purchase amount only - No cash back, no rounding up
• Require manager approval for checks over the standard limit

What to Accept and Refuse

ACCEPT:

• Personal checks from account holder with proper ID
• Business checks for business purchases with verification
• Checks from known, established customers (consider a regular customer database)

REFUSE:

• Post-dated checks (dated in the future)
• Checks over 6 months old
• Two-party or third-party checks
• Starter checks or counter checks
• Checks with any alterations, erasures, or corrections
• Checks where the amount doesn't match purchase total (no cash back)
• Checks from individuals who appear intoxicated
• Checks when customer seems rushed, nervous, or suspicious
• Money orders used for in-person purchases (these should be mailed, not used at retail)

Documentation Procedures

Create a rubber stamp or printed form for the back of each check you accept:

Clerk Name/ID: _________________________
Manager Approval (if req'd): ____________
Customer Address: _______________________
Home Phone: ________  Cell: ____________
ID Type/State: _________________________
ID Number: _____________________________
ID Expiration: _________________________
Purchase Amount: $ _____________________
Date Accepted: _________________________

Verification Services

Consider using modern check verification services:

• TeleCheck, Certegy, or similar services: Real-time verification systems that check against databases of bad check writers and returned checks
• Positive Pay through your bank: You provide a list of checks you've written; the bank rejects anything not on your list (for outgoing checks)
• Remote verification: Some banks will verify funds by phone for businesses with accounts there

Employee Training: Creating a Culture of Vigilance

Even the best policies fail without proper employee training:

Training Program Essentials

Initial Training (for all new employees before handling checks):

• How to examine checks for authenticity
• Company check acceptance policies
• Proper ID verification procedures
• How to politely decline suspicious checks
• When to call a manager for assistance
• What constitutes suspicious behavior

Ongoing Training:

• Quarterly refreshers on check fraud trends
• Review of actual bad checks received (sanitize personal information first)
• Updates when policies change
• Recognition of employees who successfully prevent fraud

Red Flag Behaviors to Train Staff to Recognize

Teach employees to watch for customers who:

• Seem nervous, rushed, or agitated during the payment process
• Try to distract the cashier while presenting a check
• Are overly friendly or talkative (building rapport to reduce scrutiny)
• Make purchases with no regard for price, size, or specifications
• Buy easily resellable items (electronics, gift cards, designer goods)
• Shop just before closing or during very busy periods when staff is distracted
• Return to the store multiple times in one day
• Become defensive or hostile when asked for identification
• Claim to have "forgotten" their ID
• Present multiple checks for separate transactions

Creating Support Systems

• Establish a code word or phrase employees can use to call for manager assistance without alerting the customer (e.g., "I need a price check on this")
• Make it clear employees can refuse checks if they feel uncomfortable-never pressure staff to override their instincts
• No blame for good-faith errors: If an employee follows procedures and a bad check still gets through, don't punish them (but if they violate procedures, address it)
• Share success stories: When employees successfully prevent fraud, recognize and reward them

Refusing Checks: How to Say No

You have every legal right to refuse checks. Here's how to do it professionally:

Legal Rights

• You're not obligated to accept checks from anyone
• You can refuse checks even with proper ID if you're uncomfortable
• You can set reasonable policies and apply them consistently

How to Decline Professionally

Use neutral, policy-based language:

• "I apologize, but our policy doesn't allow us to accept checks over $500"
• "I'm sorry, but we require government-issued photo ID for all check transactions"
• "Our policy prohibits accepting two-party checks"
• "I apologize, but we can't accept post-dated checks"

Offer alternatives:

• "We accept credit cards, debit cards, and cash"
• "We can hold the item for you if you'd like to come back with another payment method"
• "There's an ATM nearby if you'd prefer to pay cash"

Avoiding Discrimination

Never say:

• "We don't take checks from college students"
• "We don't accept checks from this neighborhood"
• "You look too young to have a checking account"
• Any statement that could be construed as discriminatory

When Bad Checks Happen: Recovery and Response

Despite your best efforts, you may occasionally receive a bad check. Here's how to handle different scenarios:

Understanding Bank Return Reasons

Banks return checks with specific codes. Common reasons include:

1. Insufficient Funds (NSF) / Non-Sufficient Funds

The account exists but doesn't have enough money to cover the check.

Recovery potential: GOOD

Action steps:

• Contact the customer immediately-often this is an honest mistake
• Many customers will make good on the check plus fees
• Redeposit the check after 3-5 days (many banks allow this once or twice)
• If it bounces a second time, send a formal demand letter via certified mail
• Most states allow you to charge an NSF fee ($25-$40, check your state law)
• If not paid within your state's timeframe (often 10-30 days), consider small claims court or prosecution

2. Account Closed

The checking account has been closed, either by the customer or the bank.

Recovery potential: FAIR to POOR

Action steps:

• Determine if this was intentional fraud or carelessness (person may have closed old account and forgotten about outstanding checks)
• Contact customer immediately for explanation
• If the customer is known in your community and seems legitimate, work out payment arrangement
• If you can't reach them or they refuse to pay, file a police report
• Closed account checks may be prosecutable as fraud in your state

3. No Account / Account Not Found

No such account exists at the bank.

Recovery potential: VERY POOR

Action steps:

• This is almost always fraud-the check is completely fake
• File a police report immediately with all documentation (check, ID information, video if available)
• Notify other local businesses through your merchant association
• Report to check verification databases if you use them
• Review your procedures-how did this get accepted?

4. Forged or Altered

The bank has identified the signature as forged or the check as altered.

Recovery potential: VERY POOR

Action steps:

• Report to local police immediately
• For U.S. Government checks, contact the U.S. Secret Service
• Preserve all evidence (the check, copies of ID, transaction records)
• Notify your loss prevention network
• This is criminal fraud-full prosecution is appropriate

5. Stop Payment

The account holder requested the bank not pay the check.

Recovery potential: FAIR

Action steps:

• Contact the customer to understand why they stopped payment
• This might be legitimate (lost merchandise, dissatisfaction) or fraud (received goods, stopped payment)
• If dispute is over product/service quality, resolve through normal customer service
• If the customer fraudulently stopped payment after receiving goods, this may be prosecutable
• Document everything for potential legal action

Legal Remedies and Prosecution

Your options depend on your state's laws, which vary significantly:

Demand Letter Requirements:

• Most states require sending a formal demand letter before prosecution
• Send via certified mail, return receipt requested
• Include: check amount, date, reason for return, demand for payment plus fees, deadline (usually 10-30 days), and warning of prosecution if not paid
• Keep copies of everything

Small Claims Court:

• For amounts typically under $5,000-$10,000 (varies by state)
• No lawyer required
• Filing fees usually $50-$200
• You can claim the check amount, NSF fees, court costs, and in some states, damages
• Winning the judgment doesn't guarantee collection-you may need to pursue wage garnishment or liens

Criminal Prosecution:

• Contact your local police department or district attorney
• Bring all evidence: original check, ID copies, transaction records, any communication with customer
• Criminal prosecution doesn't get you paid-it punishes the offender
• Many jurisdictions have worthwhile check prosecution programs
• Threshold amounts vary: under $500 often misdemeanor, over $500-$1,000 often felony

Collection Agencies:

• For amounts over $100-$200, collection agencies may accept the debt
• They typically take 25-50% of recovered amounts
• Success rates vary but are generally low for bad check cases
• Useful when you have many small bad checks to pursue

Prevention Through Reputation

Technology Solutions for Check Fraud Prevention

Modern technology offers several tools to protect against bad checks:

Check Scanners and Imaging Systems

• Scan checks at point of sale to verify MICR encoding
• Detect alterations through image analysis
• Create digital records for later verification
• Many systems integrate with verification databases
• Cost: $200-$2,000 depending on features

Remote Deposit Capture (RDC) with Duplicate Detection

• Deposit checks by scanning rather than taking to bank
• Modern systems detect if a check has been deposited before
• Faster access to funds
• Reduces risk of lost checks
• Your bank likely offers this service

Real-Time Verification Services

• TeleCheck: Largest check acceptance and verification service
• Certegy: Check guarantee and verification
• EWS (Early Warning Services): Database of returned checks and account closures
• These services provide instant accept/decline recommendations at point of sale
• Some offer guarantee programs (they'll reimburse you for bad checks they approved)

Positive Pay Services

• Upload list of checks you've issued to your bank
• Bank rejects any check not on your list (protects your outgoing checks)
• Reverse positive pay: Bank sends images of checks presented, you approve or reject
• Essential for businesses writing many checks
• Prevents forged checks drawn on your account

Video Surveillance

• High-quality video of check transactions deters fraud and aids prosecution
• Position cameras to capture face and hands during payment
• Display signs that transactions are recorded
• Retain footage for 30-90 days
• Modern systems store digitally and are searchable by date/time

Best Practices Checklist

Use this checklist to ensure you've covered all bases:

Policy Development

• Written check acceptance policy
• Dollar limits clearly established
• ID requirements documented
• List of acceptable check types
• List of check types to refuse
• Manager approval thresholds set
• Procedures for handling suspicious situations

Employee Training

• Initial training for all new hires
• Quarterly refresher training scheduled
• Bad check examples reviewed with staff
• Red flag behaviors documented and taught
• Code words/procedures for requesting help established

Physical Tools

• Rubber stamp or form for recording check information
• Current check verification equipment (if used)
• Access to phone for verification calls
• Sample checks showing security features for comparison
• Video surveillance system operational

Technology

• Check verification service (if volume justifies)
• Remote deposit capture with duplicate detection
• Positive pay on your business account
• POS system that can record check details

Response Procedures

• Process for handling returned checks documented
• Demand letter template prepared
• Relationships with local police/prosecutors established
• Small claims court procedures understood
• Insurance coverage reviewed

Regular Reviews

• Monthly review of any returned checks
• Quarterly policy review and updates
• Annual training program evaluation
• Comparison of fraud losses to prevention costs

Beyond Checks: Modern Payment Fraud

While checks are your primary concern, today's criminals have expanded their operations across all payment channels. A complete fraud prevention strategy addresses these modern threats:

Credit and Debit Card Fraud

Card fraud now represents the majority of payment fraud. Key protections:

• Use EMV chip readers: Required to shift liability away from your business. Swipe-only terminals make YOU liable for counterfeit card fraud
• Verify the signature or require PIN: Though less common with contactless payments, signature verification still matters for high-value purchases
• Watch for card testing: Multiple small transactions in rapid succession may indicate stolen cards being tested
• Be suspicious of: Multiple failed card attempts, customers with multiple cards, mismatched names on cards

Online and Phone Order Fraud

Card-not-present transactions carry higher fraud risk:

• Require CVV codes for all transactions
• Use Address Verification Service (AVS) to match billing addresses
• Flag mismatched billing/shipping addresses for review
• Be cautious with rush shipping requests, especially to freight forwarders
• Verify large orders by calling the customer
• Watch for unusual IP addresses (foreign countries, proxy servers)

Digital Wallets and Mobile Payments

Apple Pay, Google Pay, and similar services are generally secure but can be compromised:

• Ensure your terminal accepts contactless NFC payments
• These transactions use tokenization-more secure than traditional cards
• Account takeover is the primary risk (criminals adding stolen cards to their own phones)
• Person-to-person apps (Venmo, Zelle, Cash App) should not be used for business transactions-they lack merchant protections

ACH and Wire Transfer Fraud

For businesses accepting ACH payments or making wire transfers:

• Use multi-factor authentication for all banking access
• Implement dual authorization for transfers over set amounts (e.g., $10,000)
• Beware of business email compromise-criminals impersonate vendors requesting payment to "new" accounts
• Verify all payment instruction changes via phone using known numbers
• Use ACH blocks and filters through your bank

Chargeback Fraud ("Friendly Fraud")

Legitimate customers disputing valid charges to get free merchandise:

• Keep detailed records of all transactions
• For online orders: proof of delivery with signature, tracking numbers, customer communication
• For in-person: transaction receipts, security footage if challenged
• Respond to all chargebacks within the deadline (usually 7-21 days)
• Consider chargeback protection services if this is a significant problem

Gift Card and Refund Fraud

• Criminals often use stolen payment methods to buy gift cards (easily resold)
• Set limits on gift card purchases
• Flag multiple gift card purchases as high risk
• For refunds, refund to original payment method when possible
• Watch for refund fraud where different people return items from different purchases

Creating a Multi-Channel Fraud Prevention Strategy

Modern fraud prevention requires defense across all payment channels:

1. Layer your defenses: Use technology, policies, and employee vigilance together
2. Monitor patterns: Look for unusual behavior across all payment types
3. Stay current: Fraud techniques evolve-read industry newsletters, attend webinars, network with other merchants
4. Balance security with customer experience: Overly aggressive fraud prevention alienates legitimate customers
5. Calculate ROI: Measure fraud prevention costs against actual losses to ensure you're investing appropriately

Final Recommendations

Protecting your business from bad checks and payment fraud requires ongoing attention, but the fundamentals haven't changed since your business began:

• Trust but verify: Most customers are honest, but verification protects everyone
• Empower your employees: Give them the tools, training, and authority to refuse suspicious transactions
• Document everything: Written policies and recorded transactions are your best defense
• Act quickly on fraud: Fast response increases recovery chances and deters future attempts
• Build a reputation: Word spreads when you prosecute fraud-use it to your advantage
• Stay current: Technology and fraud techniques evolve; review and update procedures annually

Remember: Perfect security doesn't exist. Your goal is to make fraud difficult enough that criminals choose easier targets while keeping the process smooth for honest customers. The strategies in this guide strike that balance-protecting your business while maintaining the customer service that drives your success.

This guide reflects current payment fraud prevention best practices. Laws, technology, and fraud techniques vary by location and change over time. Consult with your attorney, banker, and payment processor for guidance specific to your situation.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com