Check Guarantee

What Is A Check Guarantee?

A check guarantee is a service credit card processors offer that guarantees merchants will receive funds from checks.

Check Guarantee Explained

Many merchant account providers offer check guarantees. Some include a guarantee for all merchants who accept checks, while others offer it as an optional service. For those providers who offer it as an add-on, there’s usually a monthly fee for the service. There may also be a fee per check.

The purpose of a check guarantee is for merchants to receive funds even if they accept a bad check. If a merchant takes a check that is then returned, the payment processor will still pay them for the transaction.

Some reasons for a check to bounce include insufficient funds or an account that doesn’t exist. Customers can also stop payment on checks. They might do so if they lose their checkbook or have it stolen.

Another potential issue is scammers trying to pay with phony checks. Fake or counterfeit checks are a common issue; in 2019, the FTC reported 27,000 fake check scams.

In some cases, you can contact your customer and resolve the issue directly with them. But for situations where this isn’t possible, a check guarantee can save you money and hassle.

To qualify for a check guarantee, merchants must follow appropriate check acceptance procedures. For example, you should ask for the check writer’s ID before taking their check. Before you opt in to one of these programs, be sure you understand your processor’s requirements.

Most credit card processors that provide check guarantees also offer check verification services. One common service is instant check verification at the point of sale.

Check guarantee programs tend to be expensive for merchants. But if you’re worried about losing funds from bad checks, a check guarantee might be worthwhile.

Check Guarantee Examples

Max is the owner of a grocery store. In addition to other forms of payment, he accepts personal checks.

One day, Max is going over his profits and losses for the previous month. He realizes that he lost $175 due to bad checks for that month. The $175 was from four checks. He was unable to recoup those funds from his customers.

Max calls his merchant account provider and asks if he can do anything to avoid bad checks. His provider advises that they offer a check guarantee. They explain that if he signs up for this program, Max won’t have to pay for returned checks. All he’ll need to do is pay a monthly fee of $50 and follow the program requirements.

After looking over his records, Max finds that he has lost an average of $100 each month due to returned checks. A $50 monthly fee will save him money overall. He also knows that he’ll save time trying to track down customers after their checks bounce.

The provider signs Max up for their check guarantee. They send him information about the steps he needs to take each time he accepts a check. And, they set him up with instant check verification.

Now, Max accepts fewer bad checks. When he does get one, his merchant account provider pays Max the check amount.