InternetBusinessManual.com - Step11: Problem With Accepting Checks Online

Two systems now exist online to process checks:

1) One that provides for the merchant a paper draft for physical deposit.
2) One that electronically transmits the online check through the banking network for deposit.

System Number 2 gives faster approval or denial feedback, but both systems are just different ways to present the check for approval to the bank through the traditional methods.

So each of them can be subject to NSF or unauthorized returns.

No matter what anyone tells you, presently there are no free processing systems available that verifies and delivers funds for checks instantly like an ATM, and that will guarantee payment of echecks. There are check payments systems that will initiate fund transfers from the checkwriter's account and deliver money to you in 3 to 4 days, however, the fund transfer can fail to clear due to insufficient funds, just like a check.

The drawback is because checks are the obligation of the check writer, they can be returned by banks to the depositor for insufficient funds, compared to a debit card where the issuing bank authorizes a debit card transaction, and assumes the obligation for providing good funds for that debit card transaction. So if an echeck or check payment online has non sufficient funds, you are faced with trying to collect the money from the check writer, along with your bank charging you a NSF check fine..

Let’s examine both systems, starting with check processing system 1 listed above, which provides a paper draft.

What happens when your customer submits his online check through this check payment processing software?

The shopping cart merely transmits securely that information to you, the merchant.
You then have to enter the check information into an offline check software that is only a glorified printing program. For about 20 minutes of work, you end up with a paper check draft you then have to physically deposit to your checking account.

Some merchant account providers offer one of the non-real-time check payment processing software called TurboCheck. They don’t tell you that the check software isn’t live processing; you find that out after you process your first draft.

Check payment processing software such as TurboCheck is a program downloaded onto your computer, where you manually enter the person’s checking information into the check processing software.

TurboCheck then prints out a check with all the bank routing numbers in the right places—–that is after you have spent some time manually aligning the MICR Font Line, which is the series of numbers that run along the bottom of checks. Those numbers have to be aligned right for efficient check processing through the automation equipment used by the banking industry.

In place of your customer’s signature, is a statement on the check draft like…

“Signature Not Required,” with a disclaimer beneath the signature such as, “Payment has been authorized by your depositor. Payee to hold you harmless for payment of this demand draft, which shall be deposited to the credit of Payee.”

In other words, all you have in your hands is a piece of paper. You still have to physically deposit this check into your bank account to be processed like any other check.

Now here’s the critical information you need to know about these paper drafts:

Some banks routinely deny payment on these types of draft checks, even if they are good!

What this means is you are socked with bank fees for a bad deposit, even if you get payment on the check the second time around.

Part of the reason banks do this is to protect their customers. Software programs printing check drafts allow the person printing out the check to type in any amount for the check.

Most people would type in just the amount of the order, especially if they want to stay in business for long! But, a crooked merchant or scam artist could clean out someone’s bank account before anyone knew what was happening.

Because of this serious security problem with draft checks, it is far better to let people mail you a real check from their bank that they have signed, than to take a gamble that their bank is one of those who routinely denies unsigned check drafts as a safety precaution.

Either way, just like a real paper check from your customer, you still should wait until the check clears before shipping your merchandise.