Despite the growth of digital payments, paper checks still circulate widely in B2B commerce. For credit and collections teams, checks remain a common form of payment, but they also present one of the oldest and most persistent fraud risks in Accounts Receivable.
Check fraud is not theoretical. It happens every day: stolen checks altered and deposited elsewhere, counterfeit checks created using company bank information, or payment diversion schemes where criminals redirect customer payments.
For credit professionals, preventing check fraud is not solely the responsibility of treasury or accounting. AR teams sit on the front line of customer payment activity, and often detect fraud before anyone else.
Understanding the risks, and implementing simple controls can prevent significant financial loss.
Why Check Fraud Still Happens
While electronic payment methods continue to grow, checks persist in B2B transactions for several reasons:
- Longstanding vendor payment habits
- Legacy accounting systems
- Large enterprise AP departments built around check cycles
- Customer preference for manual payment controls
Unfortunately, these same conditions create opportunities for criminals. The most common check fraud schemes affecting Accounts Receivable include:
1. Mail Theft
Criminals steal checks from mailboxes or postal sorting facilities. Once obtained, checks may be:
- Altered (“check washing”)
- Counterfeited
- Deposited using fraudulent accounts
This risk has increased significantly in recent years due to organized mail theft operations.
2. Check Washing
Check washing involves chemically removing ink from a legitimate check to alter:
- The payee name
- The payment amount
For example, a $500 payment can become a $5,000 check payable to a different entity.
3. Counterfeit Checks
Fraudsters create fake checks using legitimate bank routing and account numbers obtained from previous checks or compromised systems.
Because check numbers may appear valid, counterfeit checks sometimes bypass basic controls.
4. Payment Redirection Fraud
This occurs when criminals impersonate a vendor and convince customers to send payments to a fraudulent address or bank account.
Credit teams often detect these incidents when expected payments fail to arrive.
Why Credit Teams Are the First Line of Defense
Accounts Receivable teams see payment activity every day. That makes them uniquely positioned to identify suspicious patterns.
Common warning signs include:
- Customers claiming checks were mailed but never received
- Multiple checks arriving with altered payee information
- Checks written in unusual ink or handwriting
- Check numbers out of sequence
- Payments arriving from unfamiliar bank accounts
- Sudden payment method changes from customers
Experienced collectors develop an intuition for abnormal payment behavior.
When something “feels off,” it often is.
Operational Controls That Reduce Fraud Risk
Preventing check fraud requires a combination of operational discipline and payment modernization.
1. Encourage Electronic Payments
The most effective way to eliminate check fraud risk is to reduce reliance on paper checks.
Credit teams should actively promote:
- ACH payments
- Wire transfers
- Virtual cards
- Customer payment portals
Many companies find that even modest incentives, such as faster order processing or small discounts encourage customers to adopt electronic payments.
From a risk perspective, fewer checks equals fewer fraud opportunities.
2. Establish Secure Payment Instructions
One of the most common fraud schemes involves criminals sending customers fake payment instructions.
To reduce this risk:
- Publish payment instructions on your official website
- Include payment instructions on invoices
- Require verification for any payment change requests
Best practice: require verbal confirmation through known contacts before updating remittance details.
3. Use Positive Pay with Your Bank
Positive Pay is one of the most powerful anti-fraud tools available.
Under Positive Pay:
- Your company sends the bank a list of issued checks
- The bank verifies each check before honoring it
- Mismatched checks are flagged for review
This control dramatically reduces counterfeit and altered check fraud.
Many banks also offer Payee Positive Pay, which verifies the payee name as well.
4. Monitor Missing Payments Quickly
When customers say a check was mailed, credit teams should track payment arrival timing.
If a check fails to arrive within a reasonable window:
- Confirm mailing date
- Request check number and amount
- Verify whether the check cleared
Early detection increases the chance of stopping fraudulent deposits.
5. Implement Lockbox Services
A bank lockbox routes customer checks directly to a secure bank processing center instead of your office.
Benefits include:
- Reduced internal handling risk
- Faster deposit processing
- Improved payment visibility
- Reduced mail interception risk
For companies receiving large volumes of checks, lockboxes significantly reduce fraud exposure.
6. Train AR Staff to Recognize Fraud Signals
Technology helps, but awareness matters just as much.
AR teams should be trained to recognize:
- Payment diversion attempts
- Suspicious customer communication
- Unusual check characteristics
- Altered remittance information
Fraud prevention becomes far more effective when everyone understands the risks.
A Strategic Perspective
Check fraud is not just an operational problem. It’s a signal that payment processes may be outdated.
Forward thinking credit organizations view fraud prevention as part of a broader payment modernization strategy.
When companies move toward:
- Electronic invoicing
- Customer payment portals
- ACH adoption
- Automated reconciliation
They not only reduce fraud risk, they also accelerate cash flow. In many cases, the real solution to check fraud is not better checks. It’s fewer checks.
The Bottom Line
Paper checks remain a reality in many industries, but they carry inherent fraud risk.
Credit and collections teams play a critical role in detecting suspicious payment activity and implementing preventive controls.
Organizations that combine strong operational discipline, banking tools like Positive Pay, and a gradual shift toward electronic payments dramatically reduce their exposure.
In modern credit management, fraud prevention is not just a compliance issue.
It’s part of protecting the company’s cash.
