Think Twice Before you Pay with Paper Checks

Small businesses face a flurry of obstacles these days. You have to locate and retain the right employees, navigate your company’s growth or reductions, and find the right resources and time. These areas are important for your business, and lacking in any of them can significantly threaten your revenue and operations.

However, none of these compare to the palpable threat of checks. A seemingly innocuous slip of paper that is the biggest menace to your operations.

Checks are the Problem

Most businesses rely on checks to pay vendors, bills, contractors, and more. They can be omnipresent in financial operations. We get it! You love checks. They’re customizable with pictures of Aruba and your cat “Kenneth.” But consider this: 

According to the 2015 Payments Fraud and Control Survey conducted by the Association for Financial Professionals, “checks remain the most-often targeted payment method by those committing fraud attacks. Check fraud also accounts for the largest dollar amount of financial loss due to fraud.” 

You’ll have to put Kenneth on your next throw pillow. 

There are countless ways to commit check-related frauds. Forgers can steal blank checks and take an impromptu trip to Neiman Marcus. Counterfeiters can gain access to your bank account and routing numbers and create checks with your information. Checks can be altered to look blank by soaking them in chemicals to “scrub” off the writing that makes them legitimate. And don’t even get us started on ACH fraud. A thief gains your important information and makes online transactions using that information. All of those late night ShamWow purchases? That wasn’t insomnia, that was Jennifer from Milwaukie.

But my account is closed, that can’t possibly happen to me! You might think that, but fraudsters are elaborate when it comes to check-related crimes. Ever heard of paperhanging? It’s the process of a person continuously writing checks on an account that is closed. A personal favorite of fraudsters and a living nightmare for you.

The repercussion of check fraud is harsh – you can lose substantial amounts of money needed to run your business, plus it consumes your already limited time. It’s much more complicated than a false credit card transaction. And coordinating with the bank to recoup your money is tedious since that money has already been used on a Milwaukie ShamWow.

Inviting Check Fraud: External and Internal Circumstances

Threat #1: Mailing checks. A process so common that you might not think twice about it. But each time you drop a check in the mail, you lose control over who can access your critical banking information. That envelope – with the check – can be lost, stolen or ripped – exposing all the information a thief needs to defraud your business.  

Threat #2: Handing checks over for payment. Again, all of your critical information is now in the hands of a third party which may have dishonest intentions or leave your check vulnerable to theft. For example, is this third-party securing your check? Are they taking it immediately to the bank? Will they leave it in their car? Will they hand the check over to someone else for a bank drop? More eyes on your banking information = increased potential for fraud.

Threat #3: Check fraud within your business. That lovely book of blank checks is sweet temptation for a burgeoning fraudster. Even under lock and key it can be accessible to those bent on committing fraud. Convenience is key, and it can be relatively easy to steal some or all of those checks for illegal purposes. A morally skewed employee would most likely have a decent window of time to perpetrate a significant amount of damage before getting caught. 

How to Protect Your Business

Ditch paper checks. Seriously. Although no form of payment is 100% immune from fraud, online payment solutions like those offered by Bill.com provide a high level of protection for your payment information.

Second, use positive pay. This process takes note of what is cleared for payment on a daily basis. Any unauthorized charges that come through are not paid, but run by the business for review.

Finally, if you insist on keeping paper checks, create strict rules and processes around who can access the checks, who will review them, who will sign them, how they are stored and more. 

Take the time to re-evaluate your payment processes and eliminate paper checks. A small step now can protect your business in a significant way later down the road.