How to Handle Insufficient Funds Check [Quick Tip]

How to handle insufficient funds / returned check

When a check is deposited to the bank, it may be returned because the person / company that drafted the check did not have enough funds in their account to cover the check. The person / company still owes money to the business. Below is one option for how to handle returned checks.

Use this option to show the check on the customer’s A/R account.

1. Setup product category for Returned Checks and service item for Returned Checks in Inventory and a G/L account (expense) for Returned Checks in General Ledger

2. Map A/R system accounts transaction codes to the new G/L account for Returned Checks

3. When a check is returned:

   1. Create an invoice in Inventory using the returned check item number for the amount of the returned check and include the dollar amount of the service charge on the returned check.

      1. The total invoice amount will equal the returned check amount plus any service charge.

   2. Make a manual bank withdrawal for the amount of the check and code to the G/L returned check account number. If the bank charges a service charge, create another manual withdrawal for the amount of the charge coded to the same returned checks G/L account

   3. When the customer pays the business back for the returned check, create a receipt in A/R and apply it to the invoice for the returned check plus any service charges.

Please see How to Handle Returned Checks for more details and another option for handling returned checks without creating an invoice.

SP 8/5/2024