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A check guarantee refers to different services that assure vendors who accept checks that the funds for which a check is written will be covered through the guarantee. There are several different types of guarantee services available, some offered through banks upon which a check is drawn, but most of them available through third parties. Although these methods of guaranteeing a check — especially when offered through a third party — cost merchants money, they may save money in the long run. They give merchants the opportunity to more confidently accept payments in the form of checks without worrying that a check will bounce.
Banks may sometimes offer a check guarantee in different forms. This may be done on an individual basis, when a merchant calls a bank to simply verify that there are funds in the account to cover the check. This isn’t a promise that funds will still be available when the check is deposited and is instead for the purpose of verification only. For greater security, merchants could ask for more secure check forms like money orders, cashier’s checks, or even traveler’s checks. These are secure, since the bank has already been paid to produce them, and they are treated as “same as cash” due to the way they’re obtained.
Another form of check guarantee that is issued by banks and is becoming less common is the check guarantee card. Before ATM cards grew in popularity, many bank customers carried one of these cards from their bank and they were used to guarantee funds on a check. Merchants would write the number of the card on the check and this meant the bank was supposed to honor it, even if funds weren’t available in a customer’s account.
More common today are check verification or check guarantee services that are offered by third parties. Check verification services analyze the check writer’s information and accept or refuse checks based on whether the customer has a history of writing bad checks. These verification services may cut down on the number of bad checks a merchant accepts but they don’t necessarily guarantee that funds will be there when checks are deposited.
A third party check guarantee service often converts the check into an electronic transaction, and is comparable to accepting a payment by ATM. Money is immediately withdrawn from the check writer’s account, and if for some reason the transaction doesn’t work, the merchant is guaranteed the funds. Provided merchants follow all the steps required by the third party company, that company must give them all funds collected in check form.
Verification and check guarantee services typically cost money. Funds may include a monthly flat fee and a per check charge. When checks are guaranteed, prices are usually higher than those for simply verifying the check writer doesn’t have a poor history writing checks. Many merchants find these charges justifiable because they save on the greater costs of trying to collect on bounced checks.
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