Making good on bad checks

In these lean times, small businesses can ill-afford to write off bad debt and other expenses related to bounced checks

Story by John R. Ingrisano

IN MY FIRST BUSINESS VENTURE  back in 1974, I got stiffed on a $50 check, a fortune to me back then. After two phone calls, three letters – one trying to sound like an attorney – a shrug from the folks at the county courthouse, and countless wasted hours, I wrote the loss off to experience.  

Well, if that sounds like a familiar scenario in your business, you’re not alone. Bad checks can be annoying in the best of times, costing you time and money and cutting into your bottom line. These days, with the economy wobbling, a growing number of people struggling to make ends meet, and no margin for waste in business, bad checks can make the difference between surviving and going under.

What can you do? For one thing, there are ways to reduce the risk of getting burned on bad checks. Plus, a new program introduced in 2008 among a number of Wisconsin counties is proving to be wonderfully successful so far, creating win-win situations for everybody – business owners, the court systems and, believe it or not, even the check bouncers.

The price of worthless checks

WHEN IT COMES TO DELIBERATE FRAUD, “the problem is huge and getting larger every year,” said Shireen Johnson, compliance and risk manager with CitizensFirst Credit Union in Oshkosh. This is partially due to the technological expertise of criminals who keep finding new ways to scam businesses and individuals. “As one example,” said Johnson, “because of fancy software, they can fabricate checks and pass them off as legitimate.” 

While there will always be crooks who try to beat the system, there also are a growing number of people who – because of the weak economy – are taking more and more desperate, short-sighted chances. As their account balances get low, they write checks when the money is not there and hope their mad dash to their financial institution a day later makes it before the check clears. These days, however, with electronic transfers, the “float” can be reduced to minutes rather than days.

Still, more people attempt this and other corner-cutting techniques than many of us realize. They create for themselves and others a frustrating, downward spiral, as they “run to the bank and try to stay ahead,” explains Scott Adkisson, president and CEO of Financial Crimes Services. “Then they get hit with fees and penalties,” and the spiral continues.

The total cost can be daunting. In 10 Wisconsin counties in which Adkisson’s company has introduced a new bad-check “diversion” program, he estimates that bounced checks – those returned because the account has been closed or for Non Sufficient Funds, or NSF – totaled between $40 and $50 million in less than one year.

“In these Wisconsin counties in 2008, we received 10,903 NSF checks for $1,269,000,” Adkisson reported in a recent interview with New North B2B. “Fortunately, with our program, we were able to recover $780,000 of that money. We are also able in many instances to show people how to sit down and stop the spiral.”

In all of these instances, Adkisson said, the cost to businesses and the court system was zero.    

Be aware that these figures only represent overdrafts from accounts without sufficient funds or from closed accounts, said Adkisson. “It does not include deliberate fraud, which probably accounts for an additional 90,000 checks.”

Many of these checks are for fairly small amounts. As a result, in the past, they would go unchallenged. For the already overbooked court systems, said Adkisson, such checks end up very low on the priority list and very often are never investigated or prosecuted. When they are, the cost in terms of police reports, investigations, court time and administration often makes little sense.

Worthless check diversion program

IT USED TO BE THAT BUSINESSES HAD FEW OPTIONS when it came to bounced checks…all of them time-consuming and, in some cases, very expensive. It required hunting down the check writer themselves, investing in attorney letters, going to collection, or pressing charges. That’s changing.

Last year, as the result of a 2006 change in state law, a number of Wisconsin counties – including Winnebago and Outagamie counties – adopted a program created by Financial Crimes Services to divert worthless checks away from the court system while ensuring the business receiving the check recoups its funds and the check writer faces some measure of justice. The results have been borderline amazing.

When a worthless check is reported to county law enforcement, the information goes to the Minnesota-based offices of Financial Crimes Services. The individual who wrote the bad check is contacted and offered the opportunity to avoid prosecution and any blemishes to their record if they make good on the check, pay for any associated fees, and take a four-hour financial management class. The individual’s tuition cost for the class is $100, which is how FCS receives its revenue. There are no further costs to the county law enforcement agencies or to businesses.

“The difference is that we call and offer to help,” said Adkisson. “We understand that people get into trouble. Our goal is to help them rectify the situation. For one thing, we do not demand the entire amount at once, but arrange payment plans.”

For example, Adkisson explained, “if someone can show us proof that they make $1,000 a month and they owe $300, we’ll not ask for the full $300, but may put them on a $75 a month payment plan.”

Otherwise, they will end up borrowing the money from somewhere else, and the problem will continue. We want them to still spend good money in the community. We do not charge them interest. The goal is to create a win-win situation for everyone.”

This is not to say the new program ignores the fact that writing bad checks is a crime.

“Writing bad checks is like stealing merchandise,” said Winnebago County District Attorney Christian A. Gossett. “It boils down to theft, and it hurts businesses.” 

However, with the check diversion program, the focus is on getting the money back for merchants and lowering costs within the court system.

“At one point, four or five years ago, we were handing 400 of these cases each year,” Gossett said. “Last year, we had about 12, due to the worthless check program.”

Prosecution and other justice administration costs have plunged.

“It used to cost a minimum of $1,000 to put each case through the justice system,” Gossett said.

Administratively, when these cases would come through the justice system, there would have to be a criminal complaint, court appearances, police officer time, and other resources.

“Multiply that times 400, and it really adds up. Today, it comes to about $10 or $15 per check,” Gossett said. “This is saving taxpayers hundreds of thousands of dollars. The cost to taxpayers is almost nothing. This also frees up prosecutor, judge and law enforcement time.”

Most of all, the results have been impressive, with a substantial positive impact on retailers.

“We have seen a 28 percent increase in collections since the program began last year,” reported Johnson with CitizensFirst Credit Union.

The individual writing the bad check pays $100 in addition to restitution. But the individual is only offered the one chance to make good on their financial mistake, Gossett stressed.

“If they fail to take the course and repay the money in full, it goes into the justice system,” he said. There are no second chances.  

If prosecution eventually happens, said Adkisson, FCS helps bring the case to court.

“Last year in Wisconsin, we had 204 individuals who wrote more than 852 checks for $210,109. So, they had multiple checks. When they ignored the program to repay the money back, failed to make restitution, and go through the course, our investigators helped assemble the cases for prosecution. Every one of them was prosecuted.”

There will always be hardened criminals trying to beat the system, just as there will always be decent folks who make dumb decisions. Either way, business owners should not end up holding the bag. Between some common-sense caution at the sales counter and, with the help of Wisconsin’s worthless checks diversion program, the problem in a growing number of the Badger State’s counties is finally…in check.

John Ingrisano is a Wisconsin-based marketing strategist and the author of The Back to Basics Book of Selling: A Guide to a Successful Sales Career. He can be contacted at john@TheFreestyleEntrepreneur.com.