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Returned Checks Overview

What to do About Returned Checks

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A returned check is a check that the bank does not honor. If you are the check writer, it means that your bank will not pay the person or business you wrote the check to. If you received the check, a returned check is a check that you won’t get paid on (at least not right away). Let’s go over the basics of returned checks and what to do if you have one.

Basics of Returned Checks

Returned checks are checks that the check writer’s bank denies. There are a variety of causes for returned checks, including:

  • Not enough money in the account
  • A stop payment on the check
  • The check is too old to honor
  • The check was improperly written
  • The order in which banks process transactions
As banks and businesses process checks more quickly, returned checks are more and more likely - so what worked in the past might work anymore. It is increasingly difficult to float checks and hope that funds will arrive in your account before your check gets deposited. Nowadays, even if you write a check on paper, there's a good chance that the check will be converted to an electronic check and funds will come out of your account quickly.
 

Problems With Writing Returned Checks

If you write checks that are eventually returned, you’re setting yourself up for trouble. A few of the problems you'll encounter are:

  • You’ll end up paying a lot in fees (both to your bank as well as to whoever you wrote the check to)
  • Your bank may close your account, and other banks might reject you as a customer
  • You can find yourself in hot water, since writing bad checks is illegal
  • Your credit can eventually suffer, making it difficult for you to borrow money (or get a job or insurance) someday

For more details on what can go wrong, see What if I Write Bad Checks?

Have you Accepted Bad Checks?

If you’ve received returned checks as a merchant, you may wonder what you can do about people who write bad checks.

For starters, you can still try to collect the money. Try to contact the check writer and request that they send the funds - it may have been an honest mistake.

You can also visit a branch of the bank the check draws on (look for the bank name on the face of the check) and try to cash it. When you visit the bank in person, you may be able to avoid bounced check fees - as you now know, you're the one who gets dinged when a customer check is returned. Of course you've got better things to do with your time, but this may be your best option. Ideally you'll be at the bank shortly after the check writer has deposited money; the beginning or end of the month might be a good time to try and collect if the person gets paid with direct deposit.

Whether or not you go to a bank branch, you can try to figure out if you're wasting your time by calling the bank and verifying funds.

If the check writer will not make good on the returned check, you may have to use stronger tactics. For example, you might file a lawsuit against the check writer, and you can send their account to a collections agency (although both of those are probably only cost effective for large checks).

Each state has different laws on how to handle returned checks, the penalties, and dollar limits. Contact your bank or your local District Attorney’s office for instructions on how to deal with any returned checks you currently have.

Preventing the Problem

How can you avoid dealing with returned checks going forward? The only surefire way is to stop accepting checks. Since that might put you out of business, the next best thing is to reduce the chances of taking a rubber check. A few ideas are below:

  • Get a check verification service that can help you identify customers who have a history of writing bad checks
  • Contact the customer's bank to verify funds before accepting a check and letting the customer leave with merchandise
  • Convert checks to electronic checks or deposit them immediately with your mobile device (if possible)
  • Charge a fee to customers to discourage bounced checks and to compensate you for your time (be sure the fee is disclosed properly at the point of sale)
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