Are Check Guarantee Services Worth the Money?

Signing with a check guarantee service is like buying bad

check insurance. In determining whether to go with one, business owners should weigh their bad check risk against the costs associated with the service. While the additional costs might not be justified for some businesses, those especially vulnerable to bad check writers — such as businesses that could lose a day's profits on one bad check — might want to seriously investigate such a service.

There are a lot of check guarantee companies out there with slightly different services and prices. The company will pay you, up to a contractually agreed amount, for every bad check you receive, and the company then attempts to collect the check itself.

The fees that check guarantee companies charge for this service vary widely and are driven by factors such as the business' location and the particular industry. For example, a car dealer accepting checks for large amounts or an electronic goods retailer — both of which are at statistically higher risk of receiving bad checks — might pay more than a grocer for the same guarantee service.

The contract between a business owner and check guarantee service typically includes an agreement to reassess terms after three months to determine whether they're in line with the business' actual experience with bad checks.

If a check guarantee service still looks good after you do the cost-benefit analysis, consider the following factors in comparing companies:

• The schedule for remitting and receiving payment for bad checks. It might be weekly, biweekly or monthly. The cycle will have a significant impact on cash flow.
• References from the check guarantee agency's current clients.
• The agency's reputation for customer service (during check collection), because it reflects on your business.
• Whether the agency has the proper bonding, licensing and errors-and-omissions insurance.
• Whether the staff is properly trained, given the extensive legal regulations associated with debt collection.
• Does the agency report unsuccessful efforts to credit reporting agencies?
• Hours of operation.