Magazine article Business Credit

EFT/ACH Becoming the New Bad Checks with Bad Customers?

Magazine article Business Credit

EFT/ACH Becoming the New Bad Checks with Bad Customers?

Article excerpt

As the ratio of business-to-business transactions increasingly moves away from paper checks and snail mail toward technology-fueled options like electronic funds transfer (EFT) and automated clearing house (ACH), problems generated by bad actors are becoming more frequent. Creditors familiar with bad check writers in the past are now finding more rejections of EFT and ACH transactions because of insufficient funds, especially in high-turn/frequent-delivery industries related to food products and other perishables.

The majority of NACM members polled in a July survey (78%) indicated that customers have increased their EFT and ACH payments over the last few years. Those working for companies slow to adopt, noted expanded plans to accept electronic payment with greater efficiency, usually at the company's request.

"We do more and more with EFT and ACH every day; and for the most part, we have great success with it. But, as with checks, there are returned items, and there are more issues simply because this is where the industry is going," said Michael Castania, controller and former credit manager at McAneny Brothers, Inc.

Though far from widespread, bad EFT/ACH payment incidents have become more frequent. Statutory language from state to state typically addresses "bad check" situations, but it rarely specifies or defines EFT or ACH protocol and can be wildly inconsistent. In addition, enforcement at the local level can be even more unpredictable.

"With EFT, the laws are nebulous," said Sam Rousseau, of Liberty USA, Inc. "In Pennsylvania, to prosecute a bad check, you'd traditionally start with your magistrate, which is the lowest level of the judiciary, and present your case to an assistant district attorney. They're not quite sure of the position they can take on this [electronic payments]. It leaves us hanging out there."

In addition, ill intent is difficult to prove, significantly more so than with bad checks. "A check is a legal binding contract with a signature, and there is definite intent to pay somebody," said NACM Executive Vice President Rudet Fountain, who formerly worked for United TranzActions (UTA). "With ACH, most often you don't have a signature. Because of this, all you can do in a lengthy dispute is go to court and make your case and explain your agreement with the debtor. …

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