How to Prevent Business Check Fraud

Post Date: 1/17/2024

With the advent of digital payments, far fewer individuals today use paper checks to pay for goods and services than in the past. In fact, many retailers no longer accept checks for payment.

So, it’s ironic that check fraud is currently on the rise. According to the Financial Crimes Enforcement Network (FinCEN), 680,000 cases of possible check fraud were reported in 2022, which was nearly twice as high as the year before when 350,000 possible cases were reported.1

Today, check fraud is often perpetrated by organized criminal enterprises that steal mail in bulk from post-office boxes and even rob mail carriers at gunpoint. The thieves then remove checks from the bulk mail and create forged identifications to cash or sell them on the black market.

B2B Transactions Especially Vulnerable

While check usage has dropped drastically among consumers, checks are still used by more than one-third of businesses to pay vendors and suppliers, according to the 2022 B2B Payments Survey Report.2 This makes business-to-business transactions potentially vulnerable to fraud.

There are several reasons for this. For starters, advanced printer technology makes it relatively easy for criminals to create business checks that look and feel real. Also, paper checks don’t permit some of the fraud protections offered by digital payments, such as biometrics and two-factor authentication.

In addition, check float — or the time between when a check is written, cashed and cleared — creates an opportunity for check fraud to go undetected until it’s too late to stop it. There’s typically no float with digital payments, which mostly eliminates this risk.

Types of B2B Check Fraud

There are a number of different types of B2B check fraud. Here are a few of the most common:

  • Check washing — This starts with a stolen check, often from a mailbox. Thieves then “wash” the check by using a solvent to remove the ink and change the recipient’s name and the dollar amount. Washed checks are also sold on the dark web.
  • Check kiting — This scam takes advantage of check float. In a typical scheme, thieves will open an account at two different banks, write a check from one account to the other and cash it out from the second account before the fraud is discovered. More elaborate check kiting schemes use multiple banks and accounts and a series of revolving checks.
  • Cash-back scams — With this scam, customers use a phony check to pay more than the purchase price for a product or service and request a refund for the overpayment before the check bounces. Victimized businesses lose both their inventory and the amount refunded.
  • Stolen checkbook — This could be the worst type of check fraud. Once thieves steal a corporate checkbook, they can write as many fraudulent checks as there are in the book, in any amount they choose. Given the float time, your business could lose substantial funds before the fraud is detected.

How to Prevent B2B Check Fraud

Fortunately, there are steps you can take to protect your business from B2B check fraud. Here are a few best practices for preventing check fraud:

  • Take outgoing mail containing checks straight to the post office instead of putting it in your mailbox. And retrieve mail from your mailbox promptly every day.
  • Do not accept any overpayment for goods or services. Also, make sure checks have cleared before issuing any customer refunds.
  • Keep your business checkbook secure, preferably under lock and key. Order checks directly from your bank and only get as many as are needed for the short term so you don’t have lots of extra check stock on hand.
  • Fill out checks completely by writing out the numeric value, full name of the recipient, date and a descriptive note at the bottom. And draw a line at the end of every space to prevent thieves from writing an extra zero or adding a recipient.
  • Destroy checks once you’ve deposited them. If you use remote deposit services, shred checks once they have posted to your account so thieves can’t retrieve them from your trash and steal sensitive account information.
  • Use check fraud tools from your bank. For example, Positive Pay compares check images provided by your business to checks presented for payment to ensure a match. Any suspicious items are presented to you for a pay or no-pay decision.
  • Use EFT instead of writing checks. Perhaps the best defense against check fraud is to simply write as few checks as possible. Instead, pay vendors using electronic funds transfer (EFT) and the Automated Clearing House (ACH).

How Capital Bank Can Help

Capital Bank offers Positive Pay services that help guard against check fraud at the teller line and daily clearing. Potentially fraudulent checks are intercepted before funds are drawn on your bank account to verify and authenticate that the check was issued by your business.

To learn more about Positive Pay and other fraud prevention tools, visit us online or contact your relationship manager.
 

Sources:

1 FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail
2 How to help protect your business from check fraud