Debt Collection: NSF Checks

6 Apr

Every business experiences nonsufficient funds (NSF) in the course of business relationships. Occasionally, the bank is at fault but most often, it’s your customer who is to blame. Of course, before you jump to that conclusion, you’ll want to check the facts. But what do you do then?

Advice for avoiding NSF checks is not so unlike the advice we give for avoiding bad debt altogether. Be pro-active. Take pre-emptive steps before you get a bad check to avoid the maximum impact of receiving one.

Promptly deposit checks. Because your customer probably has other outstanding checks floating around out there, the quicker you hit the bank with your check to make the deposit, the more likely it is to clear.

Plan for NSF checks. Be prepared with sufficient funds in your account to cover NSF checks. Overdraft protection is another safety measure to save you from the embarrassment of a return check marked “uncollected funds”.

Know your customer. Some customers are routinely careless with accounts. Know who the problem clients are by keeping notes as your relationship develops.

When you receive an NSF check, your bank will return the check back to you with information citing non-sufficient funds as the reason for return. If your contact with your customer doesn’t result in a cash remedy or a cashier’s check, run the check through a second time. As an alternative to running the check again, some banks offer the option to place it for collections. When you do, your bank will check on a daily basis for the availability of funds for a limited time. Policies and timeframe limitations will vary from bank to bank.

In the event that the second deposit also bounces, you’re left to take aggressive measures. While you always have the typical collection remedies for collecting on an outstanding account, there may be other penalties for NSF checks that vary from state to state. The laws in your state may consider theft by check a misdemeanor or felony. Contact your local authorities to get a thorough understanding of the options in your state.

Upon your initial inquiry, the authorities may tell you that NSF checks are a civil matter that you must resolve on your own. However, before you walk away, you should inquire further to uncover every civil option that is available to you.

Often when dealing with NSF checks, your best approach may be to follow standard collection procedures. When you educate yourself on local and civil penalties regarding NSF checks, that knowledge may provide you with options you didn’t know you had.

NSF checks can certainly lead to stressful and ugly encounters with your customers. Many business owners will forgive an NSF check ONE TIME. But any customer that repeats this behavior must be restricted to a cash, cashier check or money order basis. Make sure your staff knows the change in credit status, too, so you don’t have to repeat the nightmare again.


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