Check guarantee services - a BAD business decision for most businesses
Check guarantees and check guarantee services are not hard to find on the Internet. Most of them begin with this offer: "Stop worrying about bad checks." Guarantee services may promise to pay businesses for "bad checks," even if they are unable to collect the bad check. Many merchants have been impressed with check guarantee claims, but have never been told the "rest of the story."
Of all the checks a merchant takes on a daily, weekly and monthly basis, an average of only 2% of these items will be returned in the form of a NSF (non-sufficient funds) check. that means for every 1,000 checks a merchant takes, the bank will only return about 20 of them, and most of these will be NSF and can quickly be collected. Of these 20 or so checks only 4-5 will be uncollectable for various reasons (i.e. fraud or closed account).
Although 98%
of all checks a merchant takes on a daily basis will clear the bank with
no problem, a check guarantee service charges businesses for every check
it accepts. Basically a check guarantee service is like an
expensive insurance policy (business owners pay and pay and then may get
some money back when they have returned checks if they did not violate
one of the guarantee rules).