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

Most people get a check for payment of services or merchandise and deposit it into their account and then forget it. Suddenly the check is returned for insufficient funds! Most people don't know what to do when this happens if they don't have a credit policy in place.

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

Call the customer immediately and tell them what happened, tell them to send or come in and pay with cash or a cashiers check or money order right away.

Be sure to add any NSF fees that are allowed by law.

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, though, if it's a long-standing customer and this was truly just a mistake, you may not want to do that.

If you do not get an answer and can only leave a message, send out 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 them of the penalties by law for writing a bad check. Also let them know of any bank fee that has been added. Give them 14 days to pay you, if they do not pay you within 14 days; let them know you will pursue the collection of the check through the appropriate legal channels.

The worse thing you can do is just hold the check and wait for the debtor to make good on it. Act immediately! Your chances of recovering will be much better.