Check Guarantee is offered by many check companies as the solution to your check problems. What do the facts reveal?

The truth is that check guarantee is not the best choice for most clients. Their sales presentation diverts your attention away from the actual amount of returned checks and recovered checks to the total of all the checks your stores accept.  They claim their company will guarantee all your checks. Nothing could be simpler - right? 

The Check Guarantee Company knows the frequency of returned checks, based on many factors, such as the type of business, location of business, historical check returns, etc.  but they emphasize the total dollar amount of checks they are guaranteeing; not the amount that actually bounces. This is a huge difference. They set themselves up to take credit for the 98% of checks that will never bounce anyway. 

The Check Guarantee Company avoids reporting your check losses based on the amount of checks that bounced. Instead, they want the client to evaluate their losses compared to the total dollar amount of all the checks accepted. They boast "our customers lose less than 2%." This is very misleading. You could probably throw away all your bounced checks and lose less than 2% of the total dollar amount of checks you accept.

Another fact that must be realized is that not all checks are guaranteed. Every check that does not meet the needed criteria (missing phone numbers, ID, street address, approval code, etc.) is not guaranteed, and is therefore either returned to the client uncollected, or assigned to a special collection unit that will attempt collection of the check, however, they do not guarantee the check.  Despite good training, many employees don’t routinely obtain all the needed information to guarantee every check. Yet the guarantee expense is always charged.

If you were to carefully examine the monthly cost of guaranteeing all your checks, whether they bounce or not, you will see that it is usually more than the monthly cost of the bad checks themselves. Because check guarantee works much like an insurance policy, when a company has numerous claims, the guarantee rate will likely increase. You are actually being reimbursed for your bad checks with your own money.

The truth is you should evaluate your check recovery based on the dollar amount of returned checks - not the amount of checks you accept.

Check Connection will recover a high percentage of your actual returned checks. We do not feel it's right to take credit for the 98% of your customers that will never bounce a check to you in the first place. 

With some Check Guarantee Companies you may lose the ability to control the way your customers are treated. Once your customer's check has been "guaranteed" the Check Guarantee Company owns the check and may handle your customer based on their customer service standards. Frequently a good customer with lost or stolen checks has extreme difficulty getting the cooperation of the Check Guarantee Company in clearing their good name. Wishing to avoid future hassles, the customer often refuses to shop again at the stores that use that service.  

As you can see, check guarantee isn’t usually the best option for most clients.

What is the difference to your business?

Let's suppose your retail store chain of 50 stores receives 25 checks each per day, and the average check is $75. You are accepting $2,812,500 in checks per month. This represents 37,500 checks.

Out of the 37,500 checks your business accepted, approximately 1.5% of the checks will be returned unpaid. This represents about 562 checks, which total $42,150 (A)

Let's say the guarantee expense for your checks is set at 3% (actual rate will vary). The cost to guarantee your checks is $84,375 (B)

You will also be charged a verification fee of perhaps ten cents per verification (actual rate will vary). The verification expense for these checks would be $3,750 (C)

Why would you pay $88,125 (B+C) to guarantee $42,150 (A) worth of checks?

Let's now consider that not all returned checks will be guaranteed because something was missing when the clerk accepted it. A conservative estimate is that 15% of these checks will not be guaranteed for one reason or another, even though you paid for the guarantee. This means that 84 of these checks, which total $6,300 will not be guaranteed. The Check Guarantee Company will usually try to collect these for you, and will be successful on about half of them. You would receive about $3,150 of this money back, and suffer a loss of the same amount $3,150 (D) for the others.

Summary:

If you further consider that many of the Check Guarantee companies require that you purchase their proprietary check verification equipment at their high retail rate the expense is increased even more. If you ever decide to change your check service to another company you will not be able to use the same equipment.

Also consider whether your Check Guarantee service will pay for forged checks, stop payment, refer to maker, and counterfeit checks. If not, you will lose even more money each month.

Be aware that the cost of  guaranteeing your checks usually doesn't include the monthly cost for statements to your company, resulting in another expense for something that should already be offered as part of the service.

Don't continue to pay outrageous guarantee expenses, verification charges, and statement charges each month. The only guarantee is that the Check Guarantee Company will take in much more money than they pay you back.

Still think a Check Guarantee Company is best for your business?

How does this compare to check recovery with Check Connection?
Let's assume the same sales figures and check volume:

Contact us at sales@checkconnection.biz for more information

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