Check guarantee

A check guarantee is a service provided to merchants, ensuring that a check will be paid. If a check bounces, the guarantor steps in and pays the amount of the check to the merchant; the guarantor then pursues payment of the check. In exchange for this service, the guarantor charges a fee to the merchant. The guarantor minimizes its losses by comparing the account number on each presented check to a database of known bad check writers. The guarantor will only pay a merchant if it follows a predetermined check processing procedure, typically involving the use of a check scanner to upload presented checks to the guarantor's database. An alternative approach is an audio response system, whereby the merchant calls a phone number, enters requested information, and receives either an authorization number or a decline. If the check subsequently bounces, the merchant uses the authorization number to obtain reimbursement from the guarantor.

Check guarantee services can increase sales for merchants, which might otherwise refuse check payments entirely, or refuse certain types of checks, such as checks written on out-of-town banks.

Related Courses

Credit and Collection Guidebook