Check service turns profit for municipality

In July 1992, the burden of trying to collect on returned checks became more than Susan Henning, a controller in the Shelby County, Tenn., clerk’s office, could handle alone. So the job was turned over to ProCheck, a national check recovery company in Memphis.

“This is absolutely the best system we have ever used,” Henning said. “We rarely get a phone call from a bad check writer, we get the kinds of reports we need, one person handles all check-related work, and our recovery rate has improved from 62 percent to more than 90 percent.”

Speed is extremely important in revenue recovery because most people who write bad checks do so accidentally. They have no intent to defraud and are usually embarrassed by their error. When the checks start coming back, the first one received tends to be the first one paid, since the perception is that the person who returns the first check has been waiting longest for payment.

Recovery companies can react to a returned check much faster than municipalities because it is their only business. Municipalities must handle bad checks in addition to their regular duties, and they usually do not have specialized computers dedicated to that purpose.

With a check recovery system, the municipality or its depository bank notifies the recovery company electronically of all returned checks, and the information is immediately entered into a computer so tracking and recovery activities may begin. The first notification then is sent.

The letters sent to check writers are courteous, acknowledging that most checks are written without fraudulent intent.

Since most people who write bad checks intend to pay their debts, the recovery rate usually is very high if action is taken quickly and courteously. Consequently, letters are friendly but progressively firmer. As soon as payment is received, a thank you note is sent.

Furthermore, the company guarantees in writing that the service will not cost government clients anything, since it makes its money from the returned check fee (typically $20) charged to the check writer, a guarantee possible because there has never been a case in which the returned check fees have not covered processing costs and also left a balance for the municipality.

During the past year, the county clerk’s office has collected $40,938 in returned check fees and deducted $20,138 for processing the checks. The remaining $20,800 was returned to the office in addition to the face value of all checks which were recovered.

At the end of each month, the recovery service provides a status report which shows the number of checks received, the face amount of each check, which checks have been recovered, all fees that have been collected and the company’s charges. Other specialized reports such as a listing of the current status of each check can be generated as needed.