By Dean Kaplan
If you’ve been in business long enough, eventually you will run into a bad check or declined credit card. All businesses are vulnerable to these payment hurdles, regardless of how many precautions you have taken. Sooner or later, a bad check or card will slip through the cracks.
Besides creating an awkward situation, bad checks and declined cards can be costly to your business. Below are some tips for handling these payment mishaps so you can get the money owed to you while treating your customers with respect.
How to handle bad checks
Contact the customer as your first step. After all, the check may have been an honest oversight or mistake. A quick phone call allows your customer to correct the situation so you can both move on with life.
Contact the bank to find out if the check was written before a deposit hit the customer’s bank – again, a relatively minor oversight that can be corrected easily. The bank can provide the status of the account, and you can take the returned check to them to be cashed. Problem solved.
Send a certified letter that includes a return receipt, with the demand for payment on the bounced check. This action signals to the customer that they may face legal action if they fail to respond and is often effective in getting the ball rolling.
Contact a collection agency if the situation continues to escalate. Trying to collect on a debt takes considerable time and effort, and you have enough on your plate as it is. Outsourcing this task to a specialist can keep the momentum going without sucking up your valuable time.
Request prosecution as a last resort. Unfortunately, you may encounter customers who are unwilling to pay their debts, or even those who wrote a bad check intentionally. Writing a bad check on purpose is a crime, so you may contact the DA to move forward with prosecution. Keep in mind that the legal environment varies by jurisdiction, so call the police department for the requirements in your area.
How to handle declined credit cards
In our increasingly technology-driven world, you are more likely to experience a declined credit card while conducting business. While declined credit cards happen to the best of us, as a general rule of thumb, your decline rate should not exceed 10 percent.
Declined credit card issues carry the same frustrations, extra legwork and risks involved with bad checks. However, handling the two issues requires different processes. Declines occur for a number of reasons: incorrect credit card number, incorrect address, and insufficient funds, just to name a few. While you may be able to infer the reason for decline, only the issuing bank can confirm that reason.
Two types of credit card declines can occur: hard declines and soft declines. Do not retry hard declines, as the reason the payment method is being declined is not temporary and subsequent attempts will likely not be successful. Soft declines can be retried because they are often the result of a temporary issue and may be successful with a subsequent attempt.
Merchants typically show the customer a generic message when a payment is declined to help mitigate fraud. For example, you might simply say, “There was a problem processing your credit card; please double check your payment information and try again.”
When the customer has placed an order with a soft-declined credit card that you did not process upon receipt, you can put the order in a pending status and try again later. If subsequent attempts are unsuccessful, it’s best to ask for a new payment method or cancel the order.
While dealing with bad checks and declined credit cards are part of doing business, these situations can be frustrating, awkward, and costly to your business. After you have exhausted the initial steps toward handling bad checks and cards, consider hiring a pro who can navigate this tricky terrain for you – so you can get back to running your business.
Dean Kaplan is President of The Kaplan Group, a commercial collection agency and consulting firm. He has extensive experience in finance, having closed over $500 million in M&A transactions as a CFO, consultant, and entrepreneur. You can find Dean on Twitter @TheKaplanGroup.