This article is part of a larger series on Business Banking.
A returned item fee, also known as a nonsufficient funds (NSF) fee, is charged by a financial institution for a returned payment or bounced check when the account doesn’t have the funds to cover the check. The average fee ranges between $20 and $40 per returned item. Not only will a returned item financially damage your business, but it could hurt your business’ reputation and affect future business.
Returned Item Fee vs Overdraft Fee
A returned item fee is charged when the bank declines the financial transaction, such as a check being returned unpaid, typically due to insufficient funds. Meanwhile, an overdraft fee is charged when the transaction against a nonsufficient balance is approved by the bank, resulting in a negative account balance.
If you’re looking for a business checking account that doesn’t charge a nonsufficient funds fee, Bluevine is an excellent choice. Bluevine offers an excellent digital-only checking product that can earn you a high interest yield and doesn’t charge an NSF fee. Visit Bluevine’s website for more information.
How a Returned Item Fee Works
When your bank attempts to clear a check or an electronic payment through your account, and you don’t have sufficient funds to cover it, it’s declined or returned. Your account is then charged a returned item fee. This can also occur if a payment or check is presented to a closed or frozen account.
The bank can also choose to pay the check or payment, overdrawing your account and leaving you with a negative balance. In this case, you’ll get charged an overdraft fee instead.
Both fees can be avoided if you have overdraft protection on your account. Overdraft protection is tied to a line of credit or another deposit account. It transfers money into your account that was set to be overdrawn, allowing the payment or check to clear. It should be noted that some banks charge fees to transfer funds with overdraft protection.
In addition, some banks charge another type of returned item fee when a check you deposited into your account is returned NSF at its originating bank. Those fees are usually smaller, averaging around $15.
There are many different small business checking accounts available. Before choosing a bank for your small business, understand the fee structure and how deposits are processed. Some banks process the largest payment first, which could end up causing you multiple NSF fees. Some banks also process all debits before credits, which can also cause a returned item.
These are all things you should know before opening a business bank account.
The Costs of Returned Item Fees to Your Business
Here are three ways returned items can cost your business:
How To Avoid Returned Item Fees
Thankfully, keeping track of your business finances has never been easier. Not only does almost every business checking provider offer robust online and mobile apps, but many of the largest banks partner with financial software companies to offer you accounting software at a discount or for free.
If you get a returned item fee, you can contact your bank to see if they’ll waive the fee. If it’s the first time you have had an NSF fee, and you’re a customer with good credit standing, there’s a chance the bank will waive the fee. It never hurts to ask and allows you to explain why it might have happened.
Here are a few steps to follow to keep returned item fees from happening in your business checking account:
- Monitor your account daily: As mentioned above, access to your business checking account is always at your fingertips with mobile and online banking. Look at your account daily and keep track of which bills have cleared and which are outstanding. Balance your account to your accounting software every day.
- Limit the number of employees with access to your business checking: While many business checking accounts tout the ability to give everyone their own debit card and custom access, not everyone needs it. The more people with access to the account, the better chance a withdrawal doesn’t get calculated into your accounting software, opening yourself up to a potential NSF situation.
- Have a thorough employee expense reporting process: You should be documenting all expenses and deposits for tax purposes, but make sure employees using your business checking account document everything. If you and your employees are meticulous about recordkeeping, there’s less chance of an accounting error.
- Sign up for overdraft protection: If your business is in a situation where you don’t have a cushion in your business checking account, you should sign up for overdraft protection. This will keep you covered in the case of an accounting mistake leading to nonsufficient funds. The last thing you want is something to be returned, and this will prevent that.
- Sign up for alerts and contact your bank immediately if anything looks suspicious: Almost all banks offer account alerts, so take advantage of them. Set alerts to notify you if your account gets under a certain balance, so there are no surprises. And if you see suspicious charges on your account, contact your bank immediately.
Returned item fees cannot only damage your business with excessive fees but can harm the reputation of a startup or small business. In most cases, if you’re keeping proper records of bills paid, income received, and expenses upcoming, you should be able to avoid NSF fees. However, understand how your bank handles these fees before signing up. And if you want to avoid NSF fees altogether, Bluevine offers a digital-only business checking account with no returned item fees. Stop by Bluevine’s website for more information or to sign up.