What to do if you receive a Bad Check

Know More: Bad Checks, Creating a Credit Policy, Debt Collection Letters, Fair Debt Collection Practices Act, I have past due customers, what do I do?, What makes a Good Collector?

Most business owners get a check for payment of services or merchandise and deposit it into their account and forget it. Then suddenly the check is returned for Non-sufficient funds! Most people don't know what to do when this happens.

When people ask me what should I do with this check, here is what I tell them:

Call the customer immediately and tell them what happened.
Ask them to send out a money order or cashiers check right away.
Be sure to add any NSF fees allowed by law. If it is a local customer, tell them they have to come in and pay you with cash right away. Be sure to make a note on their account that you have received a bad check, you may want to only accept cash or money orders for future payments. (if it is a long standing customer and this was truly just a mistake, you may not want to do that.)

If you call and do not get an answer, send a Demand for Payment notice by certified mail. On the bottom of the notice make a note that a copy of the notice is being sent by regular mail to ensure delivery. That way if they do not sign for the certified letter, you can be sure they received the notice by regular mail.

In your Demand for Payment notice, state the check number, amount, bank name, and who signed the check. I like to advise the customer of the penalties by law for writing a bad check (check your states laws). Itemize any bank fees or penalties that have been added to the check amount. Give them 14 days to pay you. If they do not pay you within the 14 days, let them know you will pursue the collection of the check through the appropriate legal channels.

After the 14 days, depending on where you are located, there are different avenues you can take. In some states you can call the police in the town where the check was written and they will visit the debtor and try to obtain the payment for you. In other states you have to file with the local courthouse. Some businesses do not want to do these things and will turn the check over to an attorney or collection agency.

The worst thing you can do is just hold the check and wait for the customer to make good on it. Act immediately! The sooner you act, the better your chances of recovering your money.

Credit Policy for businesses and how to extend credit and manage credit risk

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