Electronic collection on NSFs reduce expense

Businesses lose billions of dollars each year because of checks that have been returned marked unpaid for insufficient funds, or "NSF," and statistics show that one in every 80 checks is an NSF check. In 1996, the National Retail Federation estimates annual retail losses at $5.9 billion for check fraud. Seventy percent of that total represents checks returned to retailers because there wasn't enough money in the customers' bank accounts.

A new banking rule, approved by the board of directors of the National Automated Clearing House Association last year, is expected to help reduce those losses.

The rule, which went into effect in September 1999, approved the electronic collection of checks returned for insufficient funds. Those checks can be collected through the Automated Clearing House Network, the network that allows financial institutions to exchange payments on behalf of business customers and consumers.

Before the new rule, returned checks that were to be re-presented had to be physically sent through the check clearing system in order to be collected. The new NACHA rule allows the re-presenting to take place over the ACH Network.

An Ozark business was part of a pilot program, established in the spring of 1998, in which the new rule was drafted. SurePay, a division of eCollect Inc., offers electronic check recovery free of charge to business owners, and electronic check verification and conversion for a fee. James Campbell owner of the regional processing center, said the company officially began doing business last December.

"The banking rule basically allows businesses like ours after we get an authorization from the merchant or business that is then sent to their bank to have any bad checks that they receive returned to us," Campbell said. SurePay collects all of a business' bad checks, not just those returned because of insufficient funds.

Wade Terrell, marketing manager for SurePay, said once check information is entered into a computer using trademarked company software, the money can be electronically debited from a customer's bank account.

ECollect is allowed to monitor bank accounts, which increases the chance that a merchant will get his or her money. In fact, the company states that collection rates are improved by as much as 50 percent because of the ability to monitor the check writer's bank account prior to electronically debiting the amount.

Electronic check recovery also allows merchants to get their money quicker, Terrell said. "Traditional methods take 30 days, sometimes as long as 90 days," he said, while electronic debiting allows businesses to receive payment on collected checks within a week.

Another benefit, he said, is less embarrassment for the customer who unintentionally writes a bad check.

"The merchant wants the unintentional bad check writer back in their store." Electronic debiting is done without threatening letters or phone calls to the customer, Terrell said, which increases the chance the customer will return to the business where they wrote the check.

SurePay posts signs at the point of sale alerting customers that they will be charged a processing fee for any bad checks that are written. This cuts down on check fraud, according to Campbell, because it offers a deterrent.

"Since signs are posted and they know that this merchant is using some type of technology to help protect themselves, that's not only going to reduce the merchant's losses from the bad checks, it's also going to reduce the number of bad checks that are written," he said. Costs are also kept lower for all consumers, he added. "We all have to pay for the bad checks people write in increased costs."

SurePay also offers technology at the point of sale to help protect business owners. Electronic check verification allows a merchant to verify that a check is good. Electronic check conversion takes paper checks and converts them to electronic checks, which clear faster than the paper ones, according to Campbell. Another benefit, he said, is reduced exposure to fraud. Negative file data is updated within 48 hours of settlement whereas paper checks take five to seven days to update.

Campbell said he believes electronic check recovery will quickly become widely used. "Anyone that really truly understands the process cannot help but like it, because businesses lose so much money due to bad checks, closed accounts, stop payments, NSF and check fraud. It's just unbelievable. And we reduce the per check cost."