Handling Bounced Checks and Dishonored Payments

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Occasionally, you may encounter a situation where a customer's check bounces or a payment dishonors due to insufficient funds. This article serves as your step-by-step guide in handling bounced checks and dishonored payments in QuickBooks Online, ensuring your financial records maintain their accuracy. We'll also discuss setting up appropriate services and accounts, recording the original rent payment, addressing the bounced check and dishonoured payment, recording any associated bank fees, and creating a new invoice for your customer.

Create Necessary Services and Accounts

Before processing a bounced check, you need to establish the relevant services and accounts, if you haven't done so already:

Create an Insufficient Funds Service:This service will be linked to the bank account that the original check payment was made from. Ensure you uncheck the "taxable" option.

Create an Insufficient Funds Processing Account (optional):If you plan to charge additional processing fees for bounced checks, set up this account with the account type: Other Income → Other Miscellaneous Income.

Create an Insufficient Funds Processing Service:This can have the same name as the account you've created for processing fees.

Record the Original Rent Payment

  1. Create a rent invoice for the amount due (e.g., $1,000).
  2. Record the payment made by check against this invoice.

Handle the Bounced Check

Should the unfortunate occurrence of a bounced check arise:

  1. Your bank will notify you of the bounced check.
  2. Subsequently, mark the original payment as reversed in QuickBooks Online.

Record the Bank Fee as an Expense

Next, account for any fees charged by your bank due to the bounced check:

  1. Create an Expense transaction in QuickBooks Online.
  2. Select your bank as the Payee (make sure the bank is set up as a Vendor in QuickBooks Online).
  3. Enter the amount charged by the bank for the bounced check (e.g., $25).
  4. If you are using Property Tracking, assign the Property to ensure accurate syncing.

Create a New Invoice for the Customer

The final step involves creating a new invoice for your customer that includes:

  1. The bounced check amount, using the Insufficient Funds service (e.g., $1,000).
  2. Any on-charged fees, if applicable. This is done using the Insufficient Funds Processing service (e.g., a total of $45 consisting of the $25 bank fee plus a $20 processing fee).

Upon completion, your customer will receive an invoice detailing the bounced check and any additional fees. This process ensures your financial tracking is accurate and simplifies reconciliation in QuickBooks Online.

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