Bounced Checks

Approximately 1% of the fifty billion checks written in the United States each year are returned due to non-sufficient funds. Normally only individuals or companies that regularly write NSF checks are pursued by law enforcement. Most of the time, a bounced check results from poor record-keeping and is not the result of a deliberate attempt to defraud creditors. But occasionally a company will receive a bounced check and the buyer will be unwilling to replace it. When a customer bounces a check, the credit department should:

• Contact the debtor immediately and demand an immediate replacement in the form of cash or a cashier's check and arrange for someone to pick up the check that day
• Place the account on credit hold
• Recall any shipments in transit to the customer
• Place all orders in production on hold
• If the debtor is unable or unwilling to replace the dishonored check, notify your attorney or law enforcement
• If a check is returned because the account is closed, the creditor should be even more concerned than if a check bounces due to non-sufficient funds. Demand an explanation from the customer as well as an immediate replacement of the dishonored check.
• If you receive what turns out to be a counterfeit cashier's check or money order, contact law enforcement immediately

The sooner the creditor company addresses a returned check, the more likely the company is to be paid. Under no circumstances should the bounced check be returned to the customer until a replacement payment has been received and has cleared. The NSF check is evidence of the fact that a debt was owed, and the fact that the check did not clear may be evidence of the debtor company's intent to defraud you.

Source: "Credit and Collection Manager's Manual" edited by Michael Dennis and Steven Kozack.