The bounce stops here

Sept. 7, 2003

According to, in 1999, 68 billion checks were written in the U.S., about half of which came from consumers. Some 612 million of those, worth $19.8 billion, bounced right back to trusting but unlucky merchants who accepted them.

Back then, the chances that a pizza operator would recover even a portion of the face value of a non-sufficient funds (NSF) check were about one in two.

Four years later, however, not only are those odds improving, but so is the amount of money returned to merchants. Funds from "state fees" (typically $25) charged to bad check writers are shared between recovery companies and merchants.

That's good news for pizza operators who'd love to refuse checks altogether, but who know their customers still use them.

"At one point we'd stopped taking checks because it was getting so bad, but we lost money by doing that," said Jennifer McDaid, office coordinator for Howard Pizza Inc., a six-store Domino's Pizza franchisee based in Greensboro, N.C. "We realized we had more people who were honest and writing good checks than dishonest ones writing bad checks. It wasn't fair to them."

Hoping to track down cold-check writers, McDaid "spent hours" sending letters to customers demanding repayment and even threatening court action. Even though some eventually paid up, McDaid said the effort to get the money wasn't really worth it.

"The $15 and $20 ones really weren't worth pursuing; you just hoped they called back and tried to make payment," she said. "But even the higher ones weren't worth driving to town for, especially if they weren't going to show up in court. It never ended."

Today McDaid and an increasing number of others like her use check recovery and re-presentment services. If a customer's check bounces, McDaid's service re-presents it through the U.S. automated clearing house known as the Electronic Payments Association. And instead of recovering funds on less than half the bad checks written to Howard Pizza, she's getting payment on about 70 percent of those checks, plus a $5 share of the $25 state fee.

"It takes a tremendous amount off of me to have this," she said. "I get a couple of faxes every week listing everyone who's written NSF checks to us, and another fax that tells me who've they've collected from. I'd recommend this to anyone."

Bad reputation

Check recovery services are nothing new, but according to several operators, only recently have they become more a blessing than a burden.

As recently as a few years ago, their recovery rates were low, and their methods kept the operator out of the recovery loop; the checks themselves typically went from the bank to the recovery service instead of being returned to the pizza operator. That left operators unaware of whom was writing them bad checks. Operators also had no real idea what amount of their funds were being recovered and returned to them.

Those services also cost operators one-third to one-fourth of the face value of each check for such services, and since many checks written for pizza are less than $20, some operators said they doubted the recovery companies tried very hard for such a small reward.

Julie Alvarado, office administrator for Papa O's Pizza in Bakersfield, Calif., said her former recovery service rep rarely communicated with her.

Bad Check Check-off

Consider these tips from for reducing bad checks in your operation.

1. Don't accept checks, period.

This is drastic, but you'll never get a bounced check.

2. Watch out for low-numbered checks.

Usually, a low number means a new account, perhaps one that was set up to defraud businesses such as yours. The odds are increased that these low-numbered or starter checks are fraudulent. According to, nine out of 10 bad checks bear numbers from 101 to 499.

3. Scrutinize every check.

Look for inconsistencies and things that just don't seem right. For example, personal checks with four smooth edges (no perforations) or shiny print jobs are worth a second look -- they may be counterfeits produced on a laser printer. Also, compare the series of numbers at the top and bottom of the check: The last three or four numbers of the Federal Reserve number at the top of the check (usually at the upper right) should match the first three or four numbers of the routing/transit number (usually on the lower left) Checks should also have the name of the bank and usually a location.

4. Post a bad-check policy.

Warn customers that stiff penalties await them, such as state fees, should they write a cold check.

"I'd always have to call and say, 'It's been months since I've heard from you. What are you doing?'" Alvarado said. "It wasn't like they were doing any better than I was."

The check recovery industry earned most of its bad reputation, said Richard McShirley, director of business development at JU$TCHEX in Oxnard, Calif. Many companies simply weren't accountable to their customers, and others tried to rope clients into long-term contracts full of conditions that made it a losing proposition for operators.

"I hate to say it, but there are a whole heck of a lot of snake oil salesmen in this business," McShirley said. "They promise you all these things they're going to do for free, but put a lot of rules into their contracts.

"So buyer beware: They shouldn't make you sign a long-term contract at all, or at least give you an out clause if you do. If they're doing what they promise, there shouldn't be a need for that kind of contract."

Howard Pizza's McDaid said bad check recovery companies have made many operators skeptical about their services, hence a key reason why she and others like her are slow to try them out. She said her boss had to work to convince her to speak with John Wood, president of Check Plus, about trying his service. The Burlington, N.C. firm was founded and operated in 2001 by Wood, a former three-store Domino's franchisee. When McDaid learned several other Domino's franchisees liked his services, she agreed to talk to him, though she still put him on the hot seat.

"I basically asked him, 'How do I know you're not just taking these checks, collecting on them and not giving us the money?'" McDaid said. "But now I'm finally confident he's not doing that."

Knowing what operators go through trying to get payment on bad checks convinced Wood there was a big need for the service.

"When I was still in the business, our average pizza location got three to five bounced checks a week, and I didn't want to deal with it," said Wood, whose company services around 400 retail outlets. "I'd have rather spent time trying to raise sales than chase bad debt, and so I'd send the checks over to somebody else, too. But they were never as effective as I thought they should have been."

According to Wood, Check Plus's free service works like this. If a check bounces at the bank, it's sent to Check Plus, where it's re-presented electronically through the national check clearing house. Information about the bad check writer is then posted to a Web site that allows operators to see which customers are stiffing them. Ops also get faxed updates of all information.

To cover costs, Wood's company gets 70 percent of the state fee, while the remainder, plus the full face value of the check goes back to the operator.

According to McShirley, JU$TCHEX's recovery system (its service also is free) is more operator-centered. Bad checks are returned from the bank to the operator, who goes to JU$TCHEX's Web site and re-presents the check for recovery himself. When the funds are recovered, the operator gets the full face value of the check, plus the state fee, minus JU$TCHEX's $8 charge.

Check Recovery Services

Check Plus



Check Recovery Systems


Electronic Check Corp.


NSF Check Retrieval

Want to be included in our resource list? Simply e-mail your company's name and Web site to, and we'll see that your firm is listed.

"The primary model has the merchant forwarding bad checks to the recovery company, where some data-input people send it through the ACH network," said McShirley, whose Web site was launched a year ago. "We've put all that power back into the customer's office through the Internet, and then we don't incur any cost on check (re-presentation). That allows us to pass most of the money from recovery on to the customer."

David Parker, a one-store Hungry Howie's franchisee in Ventura, Calif., said he's really pleased with the control he has with the JU$TCHEX system. He knows who the bad check writer is, and he can move to recover his funds at his own pace.

"It used to take maybe three weeks after the check had been returned that I knew who the customer was. And in that time, they could have written me three more bad checks," Parker said. Knowing who the perpetrator is, he added, helps him decide how to recover his funds. "You can decide whether to put it in (the POS system) that they're a cash-only customer from now on. Or if it's a good customer, you can give them a call personally and work it out."

Real returns

McDaid believes all bad check writers know they're doing it when they do it, though some who play the float intend on making good if caught. Others, she said, have no intention of paying up, and go to great lengths to avoid getting caught.

McShirley agreed it's impossible to rid the system of such characters completely, and that some will get away no matter the recovery effort. On average, he said, the best check recovery companies get the full face value of a check only 65 percent of the time, though recovery rates go as high as 80 percent.

Still, he said, that's a far better rate of return than operators get on their own, and with far less effort.

"We actually made $200 last month, and usually we lose a couple hundred," said Papa O's Alvarado. "We've had a lot of other recovery services that didn't work out, but this is really, really working for us. There are no drawbacks to doing this."

Topics: Financial Management , Independent Operation , Operations Management

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