2010 July: Check it Out

2010 July: Check it OutMost of the time, pizza restaurant customers either pay with debit or credit cards or whip out cash. But every so often, a customer wants to pay by check — and it’s hard to turn away money in any form, especially in today’s tough economy. “I think particularly in a recession, someone’s Visa may be maxed out, but maybe their AmEx is not,” says Rolf Wilkin, owner of Eureka Pizza, which has nine locations in northwest Arkansas. “So we take every possible credit card, plus checks, and just about anything possible to sell you a pizza.”

Checks are convenient for some diners, but they come with drawbacks, from bounced checks to lengthy ID checks during the busiest time of the day. We spoke with pizza restaurant owners and a financial expert to help you decide whether to accept checks — and if you do decide to take checks, what you can do to protect yourself from the pitfalls.

Restaurant owners have to understand that they will need to deal with bounced checks, whether their customers make accounting errors or simply know — and don’t care — that they don’t have the funds to cover the checks. “We stopped accepting checks six years ago because we found that 50 percent would bounce,” says Shawn Randazzo, co-owner of Cloverleaf Pizza, which has two locations in Roseville, Michigan. “It didn’t matter if they were business checks, personal checks, or whatever.” Randazzo has even had checks from relatives bounce.

Some restaurants use a check verification machine that scans the barcodes on checks and screens them against a database of bad check writers. Other restaurant owners use check recovery services; Wilkin uses a service that charges bounced check writers a fee on top of the amount of the purchase — and gives the restaurant $10 out of the fee.

And then there’s the time-honored system of keeping a list of people you won’t accept checks from, and training your employees to look at the list before taking a check. “Also, if it seems like you keep getting bounced checks from the same institution, you can hang a sign saying that you do not accept checks from such-and-such financial institution,” says Kathy Carney, administration manager at Hawthorne Credit Union in Naperville, Illinois.

Whether it’s worth it for you to accept checks depends on your market. For example, businesses tend to pay by check, so if you’re doing a lot of catering to corporate clients, it may be worth it to accept this form of payment. In addition, people in small towns and more rural areas are more dedicated to checks than urban customers. “It’s just kind of hometown South here, and I think that checks are part of the culture,” says Wilkin. “I think somebody in Dallas or Chicago might have a different opinion.” (Twentyfive percent of Wilkin’s sales are in checks.)

You can also take a tip from your location in determining how much trouble you’ll have with bounced checks. “You’ve heard birds of a feather flock together,” says Wilkin. “In certain towns, for whatever reason, the culture is that hot checks are acceptable. So if you’re in a neighborhood like that, I would consider not taking checks for sure.” To find out if you’re in a hotspot for hot checks, try asking other local merchants what their experiences with checks have been.

When customers are streaming into your restaurant wanting to eat now, time really is money — and accepting checks can be a time drain you may not want to deal with. “On a Friday night when it’s packed, do you want to take the time to check the ID and to put the check through the TeleCheck to make sure it’s okay?” says Carney. “When check verification systems started coming out we looked at them, and it really wasn’t worth all the hassle, even if it was a $30-per-month program that could see if checks were good right off the bat,” says Randazzo. But for Wilkin, the small amount of trouble is worth it. “It’s just part of the process,” he says. “My philosophy since we’ve opened is to make it as easy to pay as possible.”

We say that time is money, but you know what else is money? Money. Just as it costs to accept credit cards since you pay a percentage of the purchase price to the credit card company, it costs to accept checks, whether in the form of check verification services or in the form of lost funds due to check fraud or uncollected bounced checks. That’s something to keep in mind as you make the decision whether to accept this payment method.

If you decide to accept checks, Wilkin suggests not advertising that fact. “We used to really push it; we even had a sign that said we accept checks,” he says. “But we discovered that was foolish, because then you really get more than you want. So now we don’t have big signs saying that we accept checks, but we do accept them if someone asks.”

And if you’re a check-accepter who wants to ditch the checks, Carney recommends giving some notice, such as by putting up a sign that says that you’ll no longer be accepting checks starting on a certain date. ?

Checking the Checks

Want to accept checks, but you’re afraid of being burned by a bum check? Retain the services of a check recovery service. “Debtors respond to agencies and attorneys better than Joe from Joe’s Pizza,” says Chris Tipton, president of Checkmatic, Inc. While collection success rates vary by location, Tipton estimates that they average 60 to 80 percent in most areas. Clients typically receive 100 percent of the face value of the collected check and sometimes receive a certain percentage of the bad check fee collected by the check recovery service as well. “Never sign with an agency unless they give you 100 percent of the check when collected,” Tipton warns.

Linda Formicelli writes for several national publications. She resides in Concord, New Hampshire.

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