Here, you will see the advantages and precautions that should be taken, as well as tips for maintaining control over this and other payment methods in your company. Stay tuned!
What are the advantages of accepting checks?
Proper formalization for large purchases
If your company deals with products or services with high commercial value, using a check may be essential to make a sale. After all, a large part of the population does not have very high credit limits on their cards or would not like to compromise their revolving credit with a single purchase.
In addition, checks make it clearer when making large purchases who is responsible for payment. For example, in companies, it is common for the person who performs all the technical analysis and negotiations for the acquisition of a product or service to not be the same person responsible for making the payment and signing the check.
Having a document with the signature of the person responsible for payment makes it easier to identify the person and speed up the process of settling outstanding debts. Finally, there are several cases of case law in favor of companies that have sold something and not received payment.
So much so that real estate developers and agencies, for example, use this payment method a lot to carry out their transactions.
Adaptation to the B2B market
If your company sells to other companies (business to business or B2B), accepting checks can be highlighted as a good advantage. Precisely because it does not compromise the customer’s credit limits and because it functions almost as an alternative line of credit, the use of checks can be presented as a competitive advantage and a sales accelerator.
Anticipation of receivables
In case of problems with your working capital, checks can be used as an advance on receivables to obtain credit or financing from financial institutions.
In this situation, you sell your post-dated checks to banks or factoring companies, which are institutions that advance credit by charging a fee on the total value of the document. This fee varies from 2.20% to 7% on the total; at the same time, they undertake not to clear the check before the date agreed between you and your client.
Therefore, having post-dated checks can be a good alternative to obtain additional credit in times of cash flow difficulties for your company. Here are 3 tips worth highlighting:
- Assess whether the rate offered for the advance of receivables is lower than that of other lines of credit. Otherwise, it will not be worth it;
- Analyze whether, by anticipating receivables, you are not creating a negative balance in your cash flow that will be difficult to overcome with your commercial activities. In this case, you could create a snowball effect in your financial management;
- Consult your accountant so that he/she can support your decision-making, assessing whether the anticipation of receivables is in fact the best alternative for your company or whether obtaining credit from a financial institution would be more recommended for your specific situation.
Reduction of fees charged by administrators
Credit card companies charge an average of 6% on transactions using this payment method, and may also charge a fee for renting the credit card machine and additional percentages on each installment in which the purchase is made.
By using post-dated checks, these fees no longer apply to your company. This is also why many companies prefer to use checks rather than cards for large transactions.
4 precautions needed when using a check as a means of payment:
Now that you know the advantages, we highlight 4 basic precautions that need to be taken when accepting the use of checks as a means of payment.
View customer payment history
Although the rate of checks returned due to lack of funds has been less than 2.6% in the last 10 years, according to Boa Vista SCPC, the first precaution your company should take when using checks is to check the customer’s history. To facilitate this routine of inquiries, the Central Bank created the Registry of Issuers of Checks Without Funds, in which banks are required to inform all their customers who have had their checks returned due to lack of funds.
Using some credit validation services can also be quite useful for a more in-depth analysis of the customer’s default profile.
Validate that the check is filled out correctly
Filling errors, erasures or mismatched signatures may invalidate the check and prevent the bank from clearing it and returning it to your company. There are 5 fields that need to be checked to avoid this problem:
Numerical value
People usually write the amount between “#” to indicate the space for the amount and avoid erasures or inclusion of new numbers. The important thing, in this case, is to evaluate whether the amount is written correctly and whether it indicates the cents.
Written value
It must match the numerical value. Spelling mistakes do not invalidate it, and cents do not need to be quoted.
Recipient
People almost always do not fill in this field, and if you want to use the check to carry out new transactions, such as the advance payment of receivables, it must be left blank.
Otherwise, ask the customer to include the name of the account holder where the check will be cashed so that only that person or company can clear the check. This will prevent theft or loss from causing inconvenience to you or the customer.
Location
The city, day, month and year of the check’s issuance are essential to determine its validity.
Signature
There is no way to be sure how the customer registered their signature with the bank, but checking the data and signature used on the person’s ID can help prevent fraud.
Confirm ownership
Remember that a check acts as a line of credit that your company is offering to the customer, free of charge. Therefore, when accepting a check, ask to verify the bank account details, usually available on the person’s debit card, and their identification documents. Comparing these details to those contained in the check is the best way to prevent fraud and forgery.
Write down the customer’s details
Create an online record and write down the contact information and address of the person presenting the check on the back of the check. For business-to-business transactions, write down the contact information of the employee who is presenting the check to you.
The use of software to optimize these processes
Having good financial management software to manage cash flow, control customer data and identify the history of financial transactions is the additional care that your company must take.
With it, you can check the percentage of defaulters for each type of payment (bank slip, check, credit or debit cards and cash payment), create incentive campaigns for the most advantageous types for your store, in addition to having greater assertiveness in managing your working capital and in receivables anticipation transactions.
So, is using checks beneficial for your company or do you believe that the risks outweigh the benefits? To receive more tips, subscribe to our newsletter and discover that managing your company’s finances can be much easier than you imagine!