Whether it's for payment in full, or a partial payment, occasionally a payment will be returned uncleared. This could be because of insufficient funds (NSF), stop payments, accounts frozen, or some other reason. It can be frustrating, especially after month-end numbers have been added up. An experienced collection person should know how to deal with this situation in a controlled manner, and overcome this situation:
Some key points to remember when you receive notice of an NSF payment, include:
1. It's Going to Happen -- Depending on your portfolio, the age of your receivables, and industry, you may have anywhere from 1% to 10% of your payments returned NSF. It's simply a factor that you need to be aware of and be prepared to deal with. If you can keep an eye on the big picture, and watch your percentage of returned payments, you will be prepared to deal with this obstacle when it comes up.
2. Don't Get Excited -- Often collection agents get emotional about a reversed payment. There is the nagging feeling that the consumer intended to bounce the check. Yes, you want to make sure the debtor understands that providing a payment that doesn't clear isn't acceptable, but don't let your professional calm slip.
3. Give The Debtor A Chance To Explain -- This point follows up the first. Make sure that when you reach the debtor, you give them a chance to explain what happened. Sometimes it's a bank error, or something the debtor had no control over. If the debtor was unaware of the issue, let them investigate it, and get back to you. Don't streamroll them, and let them respond to the issue.
4. Two Strikes, You're Out -- Make the debtor aware that a payment plan is a privilege, not a right, and if payment arrangements can't be kept, the creditor has every right to demand payment in full. Anyone can make one mistake, but if there's a repeat trend of NSFs, make sure they know they won't be given the opportunity to pay in a non-certified manner.
5. Some Debtors Can't Manage Payments -- Some of the people we are in contact with are borrowing from Peter to pay Paul. They are so close to the edge, that a shortfall of five dollars in their account might cause something to bounce. Recognize these people, and go straight to a certified form of payment.
6. Was It Your Fault? -- Collection agents are often trained to be very aggressive. They are taught to demand payment in full, not make partial payment arrangements. This can sometimes backfire on the agent when a debtor is pressured into offering a payment that they can't honour. Yes, payment in full may be what should be asked for, but make sure the debtor is not offering you a payment out of fear or intimidation, and that they can honestly keep their arrangements.
7. Don't Call A File Paid Until It's Paid -- Some debtors may want a letter of release after their payment -- make sure you don't issue that until the clears. A cheque or EFT payment may take 15 to 30 days to clear, and make sure if you do give a letter of release, have it state that it is 'conditional upon funds clearing'.
Is It Wrong To Bounce A Cheque?
While I always recommend moderation and professionalism when dealing with a consumer who owes money, it's worth noting that the Criminal Code, Part IX: Offences Against Rights of Property, states the following about dishonoured cheques:
(4) Where, in proceedings under paragraph (1)(a), it is shown that anything was obtained by the accused by means of a cheque that, when presented for payment within a reasonable time, was dishonoured on the ground that no funds or insufficient funds were on deposit to the credit of the accused in the bank or other institution on which the cheque was drawn, it shall be presumed to have been obtained by a false pretence, unless the court is satisfied by evidence that when the accused issued the cheque he believed on reasonable grounds that it would be honoured if presented for payment within a reasonable time after it was issued.
Definition of “cheque”
(5) In this section, “cheque” includes, in addition to its ordinary meaning, a bill of exchange drawn on any institution that makes it a business practice to honour bills of exchange or any particular kind thereof drawn on it by depositors.
R.S., 1985, c. C-46, s. 362;R.S., 1985, c. 27 (1st Supp.), s. 52;1994, c. 44, s. 22;2003, c. 21, s. 5.
So, keep your cool, and make sure you control your NSF payments, and deal properly with consumers that have payments returned. If any collectors have questions about techniques to deal with returned payments, feel free to post a comment below or contact myself directly.
Blair DeMarco-WettlauferKingston Data and Credit