Bounced Checks Key Terms

Check out common bounced check key terms

As a business owner, you never want to submit a bounced check nor do you ever wish to receive one. But how do you realize what the risks are when it comes to bounced checks? By becoming knowledgeable with certain bounced checks key terms, you can be one step ahead of the game. Although certain federal, state and local rules may affect the specifics when it comes to bounced checks, you should still be aware of some common terms.

Bounced checks

There are times when people write a check for an amount of money in their checking account that is more than their available funds. These are called bounced checks, and the bank has the choice to pay the amount or not. The banks usually charge the account owner with a bounced check or non-sufficient fund (NSF) fee.
The Federal Reserve Board for more information on bounced checks.

Collection agency

A collection agency might be called upon if someone issues numerous bounced checks. These agencies will attempt to collect debts and return them to the company they are working for.

Third-party checks

A third-party check is signed over to someone else by the original recipient. There is a risk associated with cashing this type of check, as you must ensure that the original person who signed the check has the money available.

Postdated checks

Postdated checks are written to be cashed in the near future. The date marked on the check is for a time, usually weeks, in the future. The payee is expected to hold the check and not cash it until the date.
Law.com to learn more about postdated checks.

Electronic check conversion

Electronic check conversion allows merchants to convert paper checks into an electronic payment directly from the patron's bank account. The check is returned to the patron almost immediately, as if it were a debit-card transaction.
Federal Trade Commission to learn more about how the electronic check conversion process works.

Overdraft protection

Overdraft protection is provided by banking institutions and allows patrons a line of credit. This can let them write checks for more than what is in their actual balance. Instead of charging the patron with a fee for bouncing a check, the bank provides a high-interest loan to cover the difference.

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