Guardian

The best protection against check washing schemes? Stop using checks

By November 25, 2020No Comments

(This post originally appeared on The Guardian)

Ever had your checks washed? Maybe not. But be careful: it’s a growing problem for small businesses.

“Check washing” is a practice where thieves break into mailboxes (or otherwise steal mail), find envelopes with checks, then use special solvents to remove the information on that check (except for the signature) and then change the payee and the amount to a bank account under their control so that it could be deposited at out-state-banks and oftentimes by a mobile phone.

The bad news is that the problem is increasing.

Just this week, a restaurant owner in Newark, New Jersey, said that two checks that he wrote to contractors were stolen from a mailbox near his business and altered for different amounts, in total exceeding $15,000. A spokesman for the Newark police department reported another recent incident where more than $57,000 in checks were taken from four victims after a mail bag was stolen. I know what you’re thinking but let me assure you that neither Tony, Paulie or Christopher were involved.

Of course, it’s not just New Jersey where these things are happening. Police in Nashville caught a local woman with 30 checks totaling $50,000 allegedly stolen from mailboxes from Kentucky to the middle of Tennessee. Police there believe that the woman was part of a “very sophisticated syndicate” that steals checks and financial data like tax returns from mailboxes and then alters them or, at the least, takes private information such as social security and bank account numbers.

Similar check washing cases that have affected small businesses have also been reported in AlabamaPennsylvania and Connecticut.

So how can small businesses protect themselves? Experts like the National Check Fraud Center recommend using watermarks and even special fibers on your checks. Police in Palatine, Illinois, where cases have been rising, suggest using pens with special “pigments” that can be found at local office stores with labels that say “anti-fraud” and “check security.”

But the best protection? Stop using checks!

Most banks provide online payment services. Credit cards are widely used, and even if a supplier doesn’t accept credit cards you can use a service like Plastiq to accommodate payment. Digital payment services like PayPal and Venmo (which is owned by PayPal) are easy to set up. Using checks is inefficient, time consuming, open to errors and – as we can see from these reports – risks potential loss from fraud. Just as importantly, it creates a lag in information that makes reporting less timely and cash management more difficult.

You would think that these all of these reasons would deter small businesses from writing checks. But that’s not the case. Many of my clients continue to pay their suppliers the old school way and probably because most of these clients are older. But they’re not alone. The practice of check-writing among small businesses is still very popular. A recent study from the Federal Reserve found that even though the number of check payments declined 7.2% per year from 2015 through 2018, both consumers and businesses still wrote more than 14.5bn checks. Yes, that’s billion! The bottom line is that the trend away from check-writing is happening, but it’s not happening fast enough.

Does your business still do this? I recommend that you change this practice. You’ll not only protect yourself against fraudulent activities like check washing. You’ll also find yourself getting better and faster information to help you manage your cashflow more effectively.

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