With the growing trend of people tending towards non-cash payment systems, the use of other payment options, like credit card and ACH payments, has grown significantly. Although users tend towards digital payment options, the use of Cheques still remains prominent in the business ecosystem. Therefore, it becomes important to know the critical aspects of cheque payment options to prevent unwanted penalties and financial losses. This blog explores one such important, Returned Check Fee, and measures merchants can take to prevent it.
What Is the Returned Check Fee?
A returned check fee, also known as a Bounce check fee, is a penalty imposed by the bank when the customer provides a check without having sufficient funds in their bank account. This is followed by a message where the bank notifies the customer that his check has been returned unpaid because of insufficient bank balance.
Typically, Check Bounce can be a result of a low account balance or if the account is closed or frozen. The rationale behind this policy is to create deterrence among the user to prevent financial loss, safeguard the interest of the payee, and recover the administrative cost that is incurred upon processing the check.
Why Do Returned Checks Happen?
Returned checks can happen due to several factors causing inconvenience for both the user and recipient as well. Having an insufficient balance in the account is the major reason for the returned check. This can damage the issuer’s credit, so the key is to keep track of every financial transaction, especially before writing a check. Incorrect information like mismatching of signature, name, or account information can also lead to check bounce. Additionally, if checks are drawn from a closed or frozen account, which usually happens due to legal issues, can also cause returning of the check payment. Being mindful of these can prevent unwanted penalties.
How Much Fee Is Levied Upon the Returned Check fee?
Although imposing a returned check fee is subjective to the discretion of banks, the average bounce check fee can range somewhere between $10 to $40. The lowest average fee is $12 and certain banks like American Express may charge higher fees up to $38. It is even possible that banks don’t charge a single penny at all due to some provision of exception but it completely depends upon the bank. Typically, it is noticed that online banks levy lower fees and traditional American banks impose somewhat higher fees comparatively.
Consequences of a Returned Check
The most obvious consequence of a Returned check is financial impact. When the check gets bounced, the user is charged with a returned check fee by the bank. Although, the amount of fees is not much but is substantial in nature. Moreover, they may also be subject to overdraft fees if they hold overdraft protection of the bank. The user has to further incur additional charges for the reissue of the check. These all the above-mentioned expenses accumulate an unwanted financial burden upon the user.
Returned checks also impact the overall credit score of the user is the issue remains unresolved. Also, if multiple checks are bounced, the bank might notify the credit bureaus attracting unwanted trouble. If once the user gets highlighted, his creditworthiness diminishes significantly which is not good for the financial health of the user in the long term.
In extreme cases, the user might also need to face legal consequences as drafting a bad check with intention is considered a criminal offense under various jurisdictions. Legal actions if once inflicted could lead to fines of a serious nature, criminal records, and even imprisonment in rare cases. This legal trouble not only increases expenses but also hurts the personal and financial reputation of the person.
How to Handle a Returned Check Fee
Primarily, it’s important to understand the gravity of the situation and act immediately to minimize the consequence of the returned check fee. Primarily, contact the bank to identify the reason for a returned check. In many cases, if the check gets bounced, the bank notifies the user with reasons like Non-Sufficient Funds (NSF), incorrect details, etc. Identifying the reason is essential to resolve the matter.
Further, contact the bank to have effective communication and leave no room for any misunderstanding. In some cases, the bank might waive the returned fee if it is the minor and first offense of the user depending upon the policies of the bank. Even if the bank doesn’t waive the fees, then it is advisable to politely request the bank for a fee reversal, especially is the mistake was minor and a simple error oversight. If the reason involved insufficient funds then ensure to deposit the required sum of money.
Some banks, if the user holds overdraft protection, can resolve the issue on their own, so make sure to address the relevant charges of the provided service. If the required check was intended for the merchant, then immediately notify the merchant or individual. Offer to provide an alternative payment option if the check issue hopes to take a few days.
How to Avoid Returned Check Fees?
Financial transactions are a crucial part of the business ecosystem so it is advisable to take preventive measures to avoid unwanted trouble. One of the most effective preventive measures is to track the financial sheet of the account and ensure whether the account has the required sum of money before drafting the check. This can be done simply by regularly logging into online or mobile banking platforms. Setting up a low balance alert tool can also help to keep a record of funds.
In case, you realize after submitting the check that it has some discrepancies then act promptly and urge the bank to stop the payment service, which will prevent the check from being deposited. Although it may include certain fees, it is better than allowing the check to bounce and incur higher returned check fees.
Choose to inform the concerned payee about the situation to prevent them from depositing the check to avoid the returned check fee. This option requires cooperation and mutual understanding that will save both you and the recipient and further enhance the long-term relationship. Other than this, engage with your financial institution to help waive the fees, use an overdraft protection policy to solidify the preventive measure, and at last develop better financial habits for better financial management.
Conclusion
Financial transactions are a significant part of business institutions, to say clearly transactions are the backbone of the business economy. To ensure the smooth functioning of this economy it is important to have streamlined payment solutions. In the same way, understanding the proper drafting of checks is important to enhance cash flow operations. Although returned checks can be stressful but taking preventive measures can resolve the measures. Even if a check gets bounced the key is to address the issue professionally.