When an account has insufficient funds, the check writer’s bank will reject the payment request and return the check (or the electronic request) to the payee’s bank. Instead of sending money to the payee, the request for payment “bounces” back.
Why Checks Bounce
When people pay by check, there is trust involved: No cash changes hands immediately, and it will take several days for the funds to move from one account to the other. The payee (or recipient of the check) doesn’t really know how much money the check writer has available for spending, but most customers don’t make a habit of bouncing checks, so checks are often accepted on faith. In other words, merchants and service providers accept checks assuming the checks will clear without any problems. You can write anything: It’s possible to write a check for any amount you want, whether or not those funds are really available for spending in your checking account. Writing rubber checks intentionally is illegal, and a bad idea for numerous reasons, but it’s easy to do. Accidents happen: Sometimes checks bounce by accident. A check writer might believe they have funds available, but unexpected withdrawals reduce their balance and catch them by surprise. For example, automatic electronic payments, outstanding checks that hit an account unexpectedly, and large debit card holds can cause checks to bounce. Plus, sometimes people just forget to make deposits or check their account balance. Closed accounts: If the checking account was closed for any reason, checks will be rejected. In some cases, this is a sign of fraud, and it can also happen when payees are slow to deposit checks. Stop payment: If the check writer placed a stop payment on the check, the bank should honor that request. In those cases, payees need to find out why the request was made and make arrangements for an alternative form of payment. Issues with the check: Banks can refuse to honor a check if there’s anything suspicious. Common problems include missing signatures and stale-dated checks, but other issues can cause banks to flag a check.
Fees, Fees, Fees
Rubber checks lead to fees—for everybody involved. If you write a bad check, your bank will charge you fees for insufficient funds or overdrawing your account. Those fees are typically around $35 or so. In addition, the person or business to whom you wrote the check may also charge penalty or late payment fees. If you receive a check that bounces, you’ll also have to pay. Your bank will ding you for depositing a bad check even though it wasn’t your fault. Those fees are often in the ballpark of $35. In some cases, you can pass those charges on to the check writer, but you have to follow certain rules to collect those funds—and you never know if you’ll get anything, including the original payment, from a customer who writes a bad check.
How to Avoid Bouncing Checks
Check writers need to ensure that they have sufficient funds available for every check they write. There are several steps they can take to prevent checks from bouncing.
How to Avoid Depositing a Bad Check
Check recipients always take a risk by accepting checks, but it’s possible to manage those risks.
