Your Client Gave You a Bounced Check: Now What?

By Liz Alton, Contributor, on November 30, 2017

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After working hard to complete a project, a bounced check isn’t just a disappointment — it can throw your finances into a complete tailspin. You hustled to sell a project, worked hard to nail it, but now the long-anticipated payoff is turning into a headache.

According to CNN Money, data from the Consumer Financial Protection Bureau shows that the banking industry collected more than $11.41 billion in bounced payment fees and overdrafts in 2016 alone. In other words, everyone will probably get hit by a bounced check sooner or later. Just as I learned the first (and thankfully, only) time I received a message from my bank with a copy of a client check marked “NSF” for “Non-Sufficient Funds,” freelancers need to have a plan of action in place for when they receive a bounced check.

What Is a Bad Check, Anyways?

When a client writes a check and doesn’t have enough money to cover the payment, the check “bounces.” This can occur in a couple of different scenarios:

  • The client intentionally wrote a check that they didn’t have the funds to cover.

  • The client made multiple payments that cleared at different times and, due to an error, the check bounced.

  • The account to which the check is connected has been closed.

No matter the cause, a bad check is a bad check — and it has several implications. One of the most frustrating parts of the process is that it often takes several weeks (even in today’s fast-paced market) for your bank to let you know you received a bad check. First of all, you haven’t actually received the payment, so the amount of the check is deducted from your bank balance. If you’ve made withdrawals or payments against it, you could suddenly find yourself in overdraft. Even if your bank balance is healthy, you’re still going to be charged an overdraft fee by your bank. In other words, a bounced check is expensive, and it brings administrative annoyances along with it.

Don’t Panic, Take Action

If a client’s check bounced, don’t panic. Follow this quick plan to get things back on track:

  • Gather the necessary materials and information: Get a copy of the check with the NSF notice, and the names of the client and their bank. Take note of what fees you’ve been charged as a result of the bounced check, and your state’s maximum bounced check penalty.

  • Contact the client by phone: Politely reach out to the client by phone. Speak to your main contact, the person in charge of bookkeeping or both. Tell them what happened and ask for an explanation, as well as a timeline for when payment will be received. Clearly convey your expectation that the client will cover the associated fees. An easy resolution is possible. I had a check from a client bounce about halfway through a major project. Until the situation was resolved, I stopped work on the project and contacted the company. It turned out to be an issue of switching banks and account closures. They covered the fees and, better yet, direct deposited the correct amount within two days.

  • Know when a bad check signals real trouble: Is the client in financial straits or trying to evade payment? Send a certified letter to both the client and their bank demanding to be paid and reimbursed for the fees you were charged by your bank. Pay the extra couple of dollars to include a return receipt so you have proof the letter was received. If the client fails to pay in a timely manner, this documentation will be helpful if and when you have to take the next step.

  • Moving forward in a nonpayment situation: If a client isn’t paying, stop all work for them until the issue is resolved. Look into additional options, which include using a collection agency or suing for payment in small claims court.

  • Stay professional: When a client becomes a debtor, there are debt protection laws that can come into play in your state. Document everything, and be professional in your communications. Even if you’re frustrated (and you will be), remaining calm in your interactions with the client will reinforce the fact that you’re a professional.

An Ounce of Prevention

If you’re convinced that the red tape, extra fees and client management are things you want to avoid, you can take several steps to mitigate your chances of receiving a bounced payment:

  • Work on retainer: If you’re a designer who completes 10 hours of work each month for a client, try to negotiate a retainer agreement. Doing so will allow you to be paid the agreed-upon amount at the same time each month. Working on retainer eliminates the risk factor of receiving payment after completing projects — and, of course, it adds stability and predictability to your monthly income.

  • Take payment in stages: Many housing contractors will take payment in stages: A third at the start of a project, a third in the middle and a third at the end. Phased payment mitigates the risk of bounced payments, because you can stop working if there’s ever a payment issue. Consider working this model into your client contracts for larger projects.

  • Request electronic payments: While electronic payments can still bounce, this is much less likely to occur. Consider using an invoicing service like Square or PayPal — or direct deposit into a business account — to help eliminate the risks of bounced payments. Accepting credit cards through a billing service also adds a layer of protection.

Receiving a bad check is the worst feeling, especially when you’d rather be celebrating the end of a successfully completed project. But have no fear: It is possible to resolve a bounced payment when it occurs, and you can take steps in your business model to prevent it from happening in the first place.

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