What is Merchant Check Verification?

Merchant check verification refers to different systems merchants use to verify that the checks they accept will be “good” and won’t bounce when deposited. There are a number of verification strategies in place that can range from informing merchants that the check-writing habits of a client may pose a risk to actually removing money, as if the check were an ATM card, directly from an account. A variety of companies offer different services to merchants, each at a price, and each seller must determine the level of merchant check verification they feel is necessary to minimize risk of losing money due to checks that bounce or don’t clear.

One of the simplest merchant check verification types evaluates the check writing history of each customer, usually by looking at name, address, bank account number and routing number. Merchants may have a device on or near a cash register that scans checks or cashiers may have to input this information into the cash register or a small device. History evaluation shows whether people have written bad checks in the last seven to ten years that have not been successfully resolved. On this basis, a merchant can refuse to accept a check because of greater risk.

Some verification companies offer additional services at this point. A few businesses guarantee that the company, regardless of whether the check actually clears the bank, will cover any checks coming from people deemed low risk. Another potential way to handle checks at this point is to electronically deposit them in the merchant’s bank account, so that they don't have to be physically deposited.

There are additional merchant check verification services. Some of these do treat a check just as if it were an ATM card, which means it automatically deducts money from a person’s bank account, eliminating potential problems. Alternately, a few services may verify with the bank that money is available to cover a check, though this can be more difficult and isn’t always a guarantee of payment. Money could be removed before the check actually reaches the bank, and banks aren’t always willing to give out information about their customers due to privacy concerns.

A guarantee with most types of merchant check verification services is that they do cost vendors money. Common payment strategies include assessing a monthly or statement charge and a per check charge. Especially in businesses where merchants receive many checks, these fees may be worthwhile. It takes time and money to try to collect on bounced checks and businesses that receive lots of these can steadily hemorrhage money. Most large businesses adopt some form of merchant check verification system, and many small businesses also find they benefit from using one or more methods to verify soundness of checks they receive.