What to know about overpayment and check washing scams—and why a cleared check doesn’t mean it’s a good check.

While more transactions than ever are handled digitally, check fraud remains a risk for business owners. Here are two common scams directed at small businesses and what you should look for.

The overpayment scam

The Federal Trade Commission reports that one of the most common fake check scams is overpaying. In this situation, the scammer writes a check for more than the amount owed. The check may take many forms: business, personal, cashier’s check, money order or even a check delivered electronically. Next, they request that you wire the extra money back.

The scammer, usually a new customer you haven’t worked with before, relies on a time lag between when the check is deposited and when a bank discovers the check is fake. Not only does the business lose the “overage” money sent to the scammer but they also have the fake check amount deducted from their account and may face returned check fees and the possibility of an overdrawn account.

Never accept a check written for more than the invoice amount or wire back money for overpayment.

The check washing scam

Some criminals combine mail theft with check fraud. First, they steal someone’s outgoing mail containing a check. Second, they wash the check with chemicals to remove the rightful check-writer’s info—like date, payee, signature and amount. Their third step is to fill in the stolen/forged check for the amount they want and pass it off as legit.

Decline any check that is discolored, has smudges or appears tampered with.

A cleared check isn’t necessarily a good check

By law, when you deposit a check, financial institutions must make the funds available within a reasonable period. Depending on the amount of the check the hold is typically one to five days. Typically, the first $225 is available the next business day. An out-of-state or foreign check may also result in the longer holds.

During the hold, the bank or credit union validates that the account the check is written from has the funds necessary to cover the check. However, it may take weeks for a bank to discover a check is fraudulent.

Safely accepting checks at your small business

Small business owners can take these steps to avoid getting burned by a fake check:

• Ask to see the customer’s ID. Cross-check the photo with the person and the name, signature and address with the info on their identification. A different address doesn’t necessarily mean a fake check.
• Only accept checks signed in front of you. A pre-signed check could mean it’s stolen.
• Do not accept checks for more than the amount owed for the goods or services you provide the customer.
• Consider only accepting checks from local banks or national banks with a local office.
• Call the bank listed on the check and ask them to verify the routing and account numbers and if funds are available. (They may not be willing verify if an account has sufficient funds to cover the check.) Don’t rely on a phone number printed on the check as this could a phone set up by the scammer. Look up the bank’s phone number yourself.
• If you accept numerous checks, considering using a check verification service like Positive Pay.

Many businesses reduce their risk of check fraud by promoting credit and debit card payments. Consumers has partnered with the Michigan Retailers Association to offer low-fee merchant services to all business members. One of our Commercial Loan Officers can fill you in on the details.

 

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