EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Bounced Check

Home » Finance » Blog » Corporate Finance Basics » Bounced Check

Bounced Check

What is Bounced Check?

A bounced check (also known as bogus check, rubber check) is an instrument that the bank returns in case the account holder who has drawn the check has insufficient funds in his bank account, and the bank charges NSF (non-sufficient fund) fees to the check writer.

Bounced Check Fees

  • Whenever the bank finds that the account holder has insufficient funds for the check drawn, it bounces the check.
  • Since the bank had to return the check, it would charge some fees. Imagine if the check would have been passed by the bank even if the account has a lower balance, the account would go into the negative balance. A negative credit balance means a debit balance. The debit balance reflects an overdraft account. Hence, the bank may charge a fee for such overdraft utilisation.
  • The charges may be named as non-sufficient funds fees or overdraft fees. As of 2021, the average such fees are $ 35.20. However, the actual charges differ from bank to bank.

Reasons for Bounced Check

Whenever a check is drawn, there is no cash movement from one hand to another. Check is an instrument of trust that the banker will pay the holder of check for the amount written on the check. The holder (i.e., the person to whom the amount is to be paid) does not need to know the actual balance in the holder’s bank account. The holder has trust in the bank.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

However, the check may get bounced due to various reasons as follows:

  • The check usually gets bounced when the account holder deliberately writes an amount greater than the account balance. For example, say the funds available for use are $ 5600, and he has drawn a check for $ 7500. Of course, the banker will return the check. Though it is illegal to write such checks, there are numerous reasons for doing so. For example, a person with fraudulent intentions will prefer such a method.
  • Say the check is drawn on July 15, 2021, and the check writer has closed the account subsequently within few days of writing the check. It is a clear sign of fraud. Even if the recipient presents the check-in due time, the banker will reject the check treating it as bounced check.
  • It is not necessary that there would be deliberate reasons for the bounced check. Sometimes the mistake can be bonafide with no intent to harm the recipient. For example, the account holder may have received checks from its customers, which will clear after 3 days, and the account holder has already written a check which will clear after 1 day. There may arise a situation where the balance in the account is not updated for the checks to be cleared in the next 3 days.
  • The balance may get reduced after a check is made. This may be a surprise for the issuer as well.
  • The writer of the check may deliberately ask the banker to stop payment for any reason. In such a case, the banker is obliged to honour the request of the account holder.
  • Coupled with other reasons, a bank may specifically dishonour a check if it finds anything suspicious with the way the check has been written. For example, the handwriting used on figures in words and the account holder’s name may not match, or the date has been overwritten. In such a case, the banker may flag the transaction as suspicious.

How to Prevent Bounced Check?

Bouncing a check is a gesture of bad will. Some genuine account holders may not want such a situation to arise. Therefore, the check writer needs to check few points to ensure that the check does not get bounced:

  • Never draw checks in a very cut-to-cut situation. Instead, keep a cushion of extra funds in the account. This cushion will help in case of unexpected payments and will help maintain sufficient balance for checks drawn.
  • Be accountable for your account balance. Have a check on your account before writing the check. Keep a record of the sequence of checks drawn and account balance immediately after the check gets cleared.
  • In case you know a big payment is to be made and the account lacks sufficient funds, either make part payment at present or make some payment through cash.
  • Inform the payee in case of probable chances of check bounce. Explain to them your situation and request them not to present the check for few days. This will save their time, your money and your goodwill.

Impact of Bounced Check

  • Every action has some repercussion. Thus, even bounce check some minor and trivial consequences.
  • In case you had deliberately written a bad check, there are chances of criminal charges. In addition, the banker may charge a hefty amount of penalty.
  • You may be taken to the civil court if the recipient demands so. The judges of civil court may hold that the account holder has deliberately made bad checks, and thus, he may be made liable to pay fees to the court. The court may act as an agent to transfer money from the bad check writer to the eligible recipient.
  • Frustration increases for the writer as well as the recipient of the check.
  • The trustworthy image of the check writer will derail, and people would never trust him again.
  • The name of such writer may be tagged as a high-risk person by customer reporting agencies. This will paralyse the person even from opening a new bank account.

Key Takeaways

  • A bounced check is also known as a bogus check, rubber check. It is an instrument that the bank returns in case the account holder who has drawn the check has insufficient funds.
  • The account holder would be charged with an NSF fee or overdraft fee.
  • A check may get bounce due to several reasons such as deliberate mistake, unintentional mistake, non-availability of funds, stop payments or dishonour by the bank.
  • A writer of check may prevent the occurrence of such an event through checking the account balance, managing funds, requesting the recipient to hold the payment, etc.
  • The implications of bounce checks can be civil charges or criminal charges, depending on the law of the state.

Conclusion

Bounce check is a gesture of bad will. It reduces the trust of people in the banking system. Hence, many state laws consider this event as a serious matter. However, the penal consequences differ from state to state.

Recommended Articles

This is a guide to Bounced Check. Here we also discuss the definitions, reasons and how to prevent Bounced Check along with its impact and key takeaways. You may also have a look at the following articles to learn more –

Popular Course in this category
Sale
Business Valuation Training (16 Courses)16 Online Courses | 80+ Hours | Verifiable Certificate of Completion | Lifetime Access
4.5 (8,917 ratings)
Course Price

View Course

Related Courses
Equity Research Training (17 Courses)Project Finance Training (8 Courses with Case Studies)
  1. Short Term Loan
  2. Bank Draft
  3. Unsecured Loans
  4. Customer Acquisition Strategy

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

40+ Projects

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Corporate Finance Basics
    • BPO vs KPO
    • C Corporation
    • Brick and Mortar
    • Business Entity Concept
    • Bounced Check
    • Capital Maintenance
    • Bridge Financing
    • Business Exit Strategy
    • Callable Bonds
    • Affiliated Companies
    • Certified Check
    • Chattel Mortgage
    • Contingent Beneficiary
    • Debt Collector
    • Closed Corporation
    • Cumulative Voting
    • Consumer Loan
    • Commercial Loans
    • Collateralization
    • Commercial Credit
    • Collection Agency
    • Classification of Financial Markets
    • Class Action Lawsuits
    • Prudence Concept in Accounting
    • Calmar Ratio
    • Asset Classes
    • Audit Evidence
    • Contingent Liability
    • Employee Stock
    • Financial Liabilities
    • Incurred Cost
    • Partial Income Statement
    • Deferred Tax Asset
    • Tax Fraud
    • Non-Operating Income
    • Variable Costing
    • Mixed Cost
    • Prime Cost
    • Regressive Tax Examples
    • Unqualified Opinion of Auditor
    • Bonds Payable
    • Class A Shares
    • Contingent Liability Example
    • Contingent Shares
    • Contributed Capital
    • Brownfield Investment
    • Internal Audit
    • Indirect Taxes
    • Fund Management
    • Fixed Cost
    • Debt Equity Swap
    • Cash Flow Hedge
    • Risk Shifting
    • High Yield Investments
    • General Obligation Bond
    • Forward Market
    • Box Spread
    • Fixed Income Trader
    • Trade Discount
    • Quick Assets
    • Notes Payable
    • Revenue Bonds
    • Euribor
    • Settlement Date
    • Short Covering
    • Short Selling
    • Dividend Examples
    • Time to Market
    • Junior Accountant
    • Commodity Derivatives
    • Flash Report
    • Idle Time
    • Leasehold Improvement
    • Product Portfolio
    • Risk Parity
    • Branch Accounting
    • Credit Enhancement
    • Basis Trading
    • At the Money
    • Collateralized Mortage Obligation
    • Accounts Receivable
    • Long Term Investments
    • Negative Goodwill
    • Recourse Factoring
    • Residual Value
    • Short Term Loan
    • Tax Exempt
    • Audit Report Format
    • Cash Investment
    • 457 Plan
    • Audit Procedure
    • Audit Materiality
    • Audit Committee
    • Asset Allocation
    • Non-Cash Expenses
    • Dividend Policy Types
    • Credit Terms
    • Dividend Payable
    • Profit Center
    • Absorption Costing
    • Final Dividend
    • Hybrid Securities
    • Other Current Assets
    • Simple Random Sample
    • Dependency Ratio
    • Effective Duration
    • Loan to Value Ratio
    • Inventory Turnover Ratio
    • Advantages of Ratio Analysis
    • Loss Ratio
    • Delaware Corporation
    • Debt to GDP Ratio
    • Articles of Incorporation
    • Negative Covenants
    • Statutory Liquidity Ratio
    • Leverage Ratio for Banks
    • Accrued Liabilities
    • Activity Ratio
    • Debt Service Coverage Ratio
    • Return on Investment Ratio
    • Turnover Ratios
    • Cash Conversion Cycle
    • Lumion vs V-Ray
    • Capital Intensive
    • Voided Check
    • Negotiable Instruments
    • Portfolio Optimization
    • 401k Plan
    • Non-Marketable Securities
    • Stock Certificate
    • Treasury Stock
    • Appropriate Retained Earnings
    • Stockholder
    • Share Vesting
    • Shares Issued
    • Preferred Shares
    • Share Buyback
    • Shareholder Types
    • Tax Loss Harvesting
    • Statutory Audit
    • Audit Risk
    • Fund of Funds
    • Accredited Investor
    • Cost Centre
    • Lessee
    • Golden Handcuffs
    • Ordinary Shares
    • Restricted Stock Units
    • Goodwill Valuation
    • Share Classes
    • Lessor
    • Preferred Dividends
    • LIFO Liquidation
    • Dilutive Securities
    • Restructuring Cost
    • Non-Cumulative Preference Shares
    • Pass Through Entity
    • Management Discussion and Analysis
    • Premium on Stock
    • Leveraged Loans
    • Dividend
    • Dividend Policy
    • Financial Reporting Objectives
    • Financial Reporting
    • Internal Controls
    • Capital Investment
    • Debt to Equity Ratio
    • Dividend Growth Rate
    • Market Capitalization
    • Deal Origination
    • Importance of Working Capital
    • SWOT Analysis
    • White Knight
    • Root Cause Analysis
    • Realized Gain
    • Return on Operating Assets
    • Offshore Investments
    • Transfer Price
    • Times Interest Earned Ratio
    • Debt Coverage Ratio
    • Dividend Discount Model
    • Combined Ratio
    • Merger Arbitrage
    • Gordon Growth Model
    • Advantages of Joint Venture
    • Interest Coverage Ratio
    • Reserve Requirements
    • Asset Turnover Ratio
    • Price to Rent Ratio
    • Ratio Analysis Types
    • Debt Ratio
    • Business Risk
    • Financial Leverage
    • Dividend Payout Ratio
    • Mistakes in DCF
    • Risk/Reward Ratio
    • Full Form of FIPB
    • Financial Risk
    • CAPE Ratio
    • Overcapitalization
    • Systematic Risk
    • Hedge Ratio
    • Full Form of NHB
    • Sensitivity Analysis
    • Current Ratio
    • Corporation Examples
    • Asset to Sales Ratio
    • Balance Sheet Ratios
    • List of Financial Ratios
    • Coverage Ratio
    • Forward PE Ratio
    • Interpretation of Debt to Equity Ratio
    • Capitalization Ratio
    • Importance of Ratio Analysis
    • Quick Ratio Interpretation
    • Corporate Finance Basics
    • PEG Ratio
    • Corporate Finance Interview Questions
    • Price to Earnings Ratio
    • Structured Note
    • Limitations of Ratio Analysis
    • NPV vs IRR
    • IRR vs ROI
    • Imputed Interest
    • Full Form of HR
    • Shareholders Agreement
    • Earnings Per Share
    • Corporate Finance Jobs
    • About Corporate Finance
    • Corporate Finance Theory & Practices
    • Career in Corporate Finance
    • Simple Interest Rate vs Compound Interest Rate
    • Stocks vs Shares
    • Bonds vs Debenture
    • Bull Market vs Bear Market
    • Mortgagee vs Mortgagor
    • Horizontal Integration vs Vertical Integration
    • Money Market vs Capital Market
    • Leveraged vs Unleveraged
    • Dividends vs Capital Gains
    • Present Value vs Net Present Value
    • Qualified vs Ordinary Dividends
    • ROE vs ROA
    • Bond vs Loan
    • Stock Dividend vs Stock Split
    • Audit vs Assurance
    • Coupon Rate vs Interest Rate
    • Growth Stock vs Value Stock
  • Accounting fundamentals (614+)
  • Asset Management Tutorial (181+)
  • Banking (43+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (114+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Online Business Valuation Training
  • Equity Research Certification
  • Project Finance Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Special Offer - Online Business Valuation Training Learn More