Over one million checks written in the United States each year are returned to the depositor. The most common reason for returned [bounced] checks is insufficient funds. Normally only individuals or companies that regularly and deliberately write NSF checks for relatively large amounts are actively pursued by law enforcement. Often, bounced checks from your customers result from poor record-keeping meaning that they are not a deliberate attempt to defraud you and other creditors. When an established customer of yours bounces a check, the credit department should:

· Contact the debtor immediately by phone;

· Express concern;

· Demand an immediate replacement for the bounced check;

· Insist that payment be issued in the form of a wire transfer or possibly a cashier's check. If you accept a cashier's check, arrange for that check to be picked up and deposited as quickly as possible;

· Give serious consideration to placing the account on credit hold and if applicable to your business on production hold;

· Consider recalling any shipments in transit to the customer.

Some additional considerations:

· If the debtor is unwilling to replace the dishonored check, notify your attorney or law enforcement;

· If a check is returned because the account is closed, you should be even more concerned than if a check bounces due to non-sufficient funds;

· Call immediately and demand an explanation from the customer as well as an immediate replacement of the dishonored check;

· If you receive what turns out to be a counterfeit cashier's check or money order, contact law enforcement immediately.

The sooner and more forcefully that you as a creditor address bounced and returned checks, the more likely your company will get paid. Under no circumstances should the bounced check be returned to the customer until a replacement payment has been received and has cleared their bank. Why? Because an NSF check is evidence of the fact that a debt was owed, and the fact that the check did not clear may be evidence of the debtor company's intent to defraud your company and other creditors.

At one time, a Cashiers' Check was the preferred method of receiving payment because these checks were were thought to be a guarantee of payment. That is no longer true. In fact, there is a growing trend in the United States involving the use of fraudulent Cashiers' Checks. Using a laptop computer, any decent color printer and good quality paper, it is easy to generate a fraudulent Cashiers' Check that would fool almost anyone not working inside the bank on which the check is drawn. For credit professionals, the solution is to request a wire transfer payment rather than a Cashiers' Check. It should not be a tough sell. For a customer to get a Cashiers' Check requires a trip to their bank. A wire transfer can often be arranged by your customer on the phone or using their computer. The advantages of a wire transfer include:

· The fact that the creditor is paid more quickly meaning the product can be shipped more quickly; and

· Wire transfers confirmed by the creditor's bank are not going to bounce and are extremely unlikely to turn out fraudulent.