Check guarantee services assure vendors that funds for a check will be covered by a guarantee, with various methods available including bank verification, secure check forms, and third-party verification and escrow services. While these services cost money, they can save merchants money in the long run by reducing bounced checks.
A check guarantee refers to different services that assure vendors who accept checks that the funds for which a check is issued will be covered by the guarantee. There are several different types of escrow services available, some offered by banks where a check is cashed, but most are available through third parties. While these methods of securing a check – especially when offered by a third party – cost merchants money, they can save money in the long run. They give merchants the opportunity to more confidently accept payments in the form of checks, without worrying about the check bouncing.
Banks sometimes offer check guarantee in different ways. This can be done on an individual basis, where a merchant calls a bank to simply verify there are funds in the account to cover the check. This is not a promise that the funds will still be available when the check is deposited, and is for verification purposes only. For added security, merchants can order more secure check forms such as money orders, bank drafts, or even travelers checks. They are safe, as the bank has already been paid to produce them, and they are treated as “equal to cash” due to the way they are obtained.
Another form of check guarantee issued by banks and becoming less common is the check guarantee card. Before ATM cards rose in popularity, many bank customers carried one of these cards with their bank and used it to secure funds with a check. Merchants wrote the card number on the check and this meant that the bank had to honor it even if the funds were not available in the customer’s account.
Today, third-party check verification or check guarantee services are more common. Check verification services analyze check writer information and accept or decline checks based on whether the customer has a history of bad checks. These verification services can reduce the number of bounced checks accepted by the merchant, but do not necessarily guarantee that funds will be available when the checks are deposited.
A third-party check escrow service usually converts the check into an electronic transaction and is comparable to accepting an ATM payment. The money is immediately withdrawn from the check writer’s account, and for some reason the transaction does not go through, the merchant will receive the funds. As long as merchants follow all the steps required by the third-party company, the third-party company must provide them with all collected funds in the form of a check.
Check verification and escrow services typically cost money. Funds may include a fixed monthly fee and a fee per check. When checks are secured, the prices are often higher than simply verifying that the check writer doesn’t have a bad check history. Many merchants find these charges justifiable because they save on the higher costs of trying to charge on bounced checks.
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