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What to do When You receive a Bad Check

By Stephen Bucaro

As a small business operator, personal checks may be one method to receive payment for your goods or services. As a way to receive payment, a personal check is actually better than a credit card because the fees are less and there can be no charge back.

Fortunately, most people are honest and studious in taking care of their checking account. But sooner or later every small business operator will receive a bad check. The first thing to do is politely contact the individual and give them an opportunity to make the check good.

Most times you'll find that the customer has simply been careless with their checking account or finances. Consumers pay $2.4 billon annually in credit card late fees, and $31 billion annually in debit card overdraft fees - and $800 million in expedited payment fees to avoid those late charges.

The issuer of the bad check will probably be embarrassed about the incident and will immediately replace the check with a good one. Unfortunately, there are rare occasions when the individual who gave you the bad check decides to make themselves scarce.

Note: If a personal check is for more than a few dollars, it's best to let the check clear before delivering the product or service. Say, for example, that someone wants to buy your car with a personal check for twice what the car's worth. Remember, a check is just a piece of paper until after it clears. They can return to pick up the car after the check clears, or you can offer to drive with the individual to their bank to get the cash.

There are three reasons why a personal check may not clear: "insufficient funds", "account closed", or "stop payment". The proper action to take depends upon why the check didn't clear. If the check is returned for "insufficient funds", and you can't locate the individual who wrote the check, file a crime report at your local police station. If a police investigator can locate the individual who passed the bad check, that individual will be required to pay you and⁄or spend some time behind bars.

If the check was returned "account closed", you may have a criminal case depending upon when the account was closed. If the account was closed before the date the check was written, you definitely have a criminal case. Issuing a bad check is a class 1 misdemeanor for which the penalty is up to six months in jail. If the bad check is for $5000 or more and the check writer refuses to pay the full amount of the check plus interest, the check writer can be charged with a class 6 felony, which is punishable by up to two years in prison.

Here in Arizona, the civil bad check statute (A.R.S. 12-671) states : A person knowing at the time of drawing the check does not have an accont or does not have sufficient funds shall be liable to the holder for twice the amount of the check or $50, whichever is greater, together with costs and attorney's fees.

If the account was closed afer the check was written, the court may determine that you didn't present the check for payment in a timely manner. In that case, you have a civil matter, not a criminal complaint.

If the check was returned because of a "stop payment", you have a civil matter. Some people try to save time and work by filing a crime report for ANY check that doesn't clear. This can result in the individual who gave you the check being arrested. They may miss work and encounter a host of other problems as a result of your FALSE crime report.

I said FALSE crime report, because an individual who puts a stop payment order on a check almost always does so because of dissatisfaction with a product or service. The accused individual is now in a position to countersue for the problems caused as a result of your FALSE crime report. This could end up costing you a lot more than the value of the check.

Sooner or later every small business operator will receive a bad check. The first thing to do is politely contact the individual and give them the opportunity to make the check good. If that doesn't work, many people try to save time and work by filing a crime report regardless of why the check didn't clear. It's very important to determine why a check didn't clear before deciding on a course of action.