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Tips and Resources to Avoid B2B Check Fraud

October 17, 2018

The Federal Trade Commission (FTC) handles many thousands of fraudulent check reports each year, as businesses of all sizes incur significant losses. Even banks and government agencies are victimized, and the FTC reports that incidents of check fraud are steadily rising.

Tips for Managing Vulnerability

To guard against check fraud, it is recommended that businesses be proactive and vigilant. Restrict access to paper checks, reconcile bank statements ASAP, conduct regular audits, and offer fraud detection training to employees.

Another tool to detect fraud is Positive Pay technology, which is offered by most commercial banks. Positive Pay uses database information to match company-issued checks with those presented for payment. If suspicions arise, the check is returned to the issuer for further investigation.

Positive Pay Shortcomings

Positive Pay services are rather expensive, though. Businesses using the service must also regularly send information to the bank regarding check numbers, dates, and dollar amounts.

Without that pertinent data, banks are unable to perform a thorough match to confirm check authenticity. A lack of shared details about checks may also cause a legitimate check to be rejected. So Positive Pay is labor and time intensive, and can add significant payment processing costs.

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Paper Checks are Becoming Obsolete

Checks remain the prime target of nearly 75 percent of payment fraud, according to data from the Association for Financial Professionals. But without paper checks, criminals lose their preferred method of fraud and the potential for human error is also dramatically reduced.

That’s one reason why British banks started eliminating the use of paper checks nearly a decade ago. The Federal Reserve reports that since 2000, Americans have also increasingly transitioned away from check writing to electronic and credit card payments. Many younger business owners have never used paper checks.

The High Cost of Paper Payments

Managing paper checks and invoices costs U.S. businesses more than $115 billion a year. But electronic invoice presentment and payment (EIPP) can reduce overhead by more than 50 percent. Kennametal, a Pennsylvania-based global manufacturer, converted to electronic payments and reportedly reduced payment  processing costs by 90 percent.

Memorial Sloan-Kettering Cancer Center did so and now processes more than 875,000 payments per year. That’s twice as many as it processed before switching to electronic invoicing and payments. But it met that increase in volume without having to add a single new staff member.

Turnkey EIPP Resources

Even small businesses can realize similar benefits and cost savings, thanks to recent technological developments in the area of EIPP. Payment software solutions can be implemented without extra IT infrastructure or expertise, using e-check and ACH payments that reduce processing costs and speed up funding.

Other electronic options include online and mobile credit card processing. These payment platforms are flexible enough to process multiple transactions simultaneously and facilitate recurring or installment payments. Credit card payment systems incorporate robust security features like encryption, tokenization, PCI compliance, and Level 3 processing.

The Good News Regarding Check Fraud

Check fraud is a serious problem and challenge for banks, businesses, and law enforcement agencies. But there are now protective safeguards and new technologies that help to curtail or completely eliminate such crimes. Some solutions also simultaneously reduce administrative burdens while speeding up payment processing times, to keep businesses and their vendors safer and happier.