Electronic returned check fees: Overview, definition, and example
What are electronic returned check fees?
Electronic returned check fees are charges imposed when a check, payment, or transaction made through electronic means (such as ACH payments or e-checks) is returned due to insufficient funds, account closure, or other issues that prevent the payment from being processed. Similar to traditional bounced checks, these returned payments result in additional fees for the party initiating the payment (the payer) and, in some cases, the business receiving the payment (the payee). These fees are typically outlined in the terms of service or agreements between the payer and the payee.
For businesses, electronic returned check fees serve as a way to recover costs associated with the failed transaction, including administrative efforts, transaction fees, and potential lost revenue. The fee is meant to cover the inconvenience and cost of processing a payment that cannot be completed.
Why are electronic returned check fees important?
Electronic returned check fees are important for both businesses and customers. For businesses, they help cover the costs of processing payments that fail, ensuring that they are compensated for the time and resources spent on the transaction. For customers, understanding the potential for these fees encourages them to ensure that their accounts have sufficient funds to cover any electronic payments they initiate.
For SMB owners, having clear policies regarding electronic returned check fees is essential for maintaining cash flow and managing risks related to failed transactions. These fees are typically set in accordance with local regulations and industry standards, and businesses must ensure that they are disclosed transparently to customers to avoid legal or reputational issues.
Understanding electronic returned check fees through an example
Imagine you are the owner of a small retail business, and a customer purchases goods using an electronic check (e-check) through your online store. The customer’s account, however, does not have enough funds to cover the transaction, and the payment is returned. As a result, your payment processor charges you a fee for handling the failed transaction.
To compensate for this, your business has an electronic returned check fee clause in your terms of service, which allows you to charge the customer a fee to cover the administrative costs of the returned payment. The customer is notified of the fee, and once it is paid, the transaction is resolved.
In another example, a customer makes an automatic monthly payment for a subscription service using an e-check, but their bank account does not have sufficient funds to process the payment. As a result, the payment is returned, and the bank charges both the customer and your business a returned check fee. Your company has set a $25 fee for any returned payments, which is added to the customer’s next invoice.
Example of an electronic returned check fee clause
Here’s an example of what an electronic returned check fee clause might look like in a contract:
“In the event that any electronic check, e-check, or ACH payment is returned due to insufficient funds, account closure, or any other reason, the Customer agrees to pay a returned check fee of $[insert amount] in addition to the original payment amount. This fee will be assessed for each returned payment and is due immediately upon notification. The Customer’s account will remain in arrears until the returned payment and associated fee are fully paid.”
Conclusion
Electronic returned check fees are charges that help businesses cover the costs associated with failed electronic payments. For SMB owners, having clear policies regarding these fees ensures that your business is protected against losses caused by failed transactions, while also providing a transparent process for customers. Understanding how to manage these fees, and ensuring they are disclosed upfront, can help reduce financial strain and maintain smooth operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.