Bad check

Non-sufficient funds (NSF) is a term used in the banking industry to indicate that a cheque cannot be honored because insufficient funds are available in the account on which the instrument was drawn. An NSF check is often referred to as a bad check, dishonored check, bounced check, cold check, rubber check, returned item, or hot check. In England and Wales and Australia, such checks are typically returned marked "Refer to Drawer", an instruction to contact the person issuing the check for an explanation as to why the check was not honored.

The reasons for receipt of bad checks mostly relate to the party issuing the check not having sufficient funds available in the amount presented for withdrawal from the checking account. Other reasons that checks may not be honored include the account holder cancelling the check to deliberately withhold payment; the account holder's funds being frozen; the account not actually existing due to a false check being presented; and damage to the check.

Among the consequences of issuing a NSF check are actions by financial institutions, civil liability to the drawee, and possible criminal penalties. When a bad check is negotiated, the recipient of the check may choose to take action against the drawer. The action that is taken may be a civil collection action or lawsuit, or seeking criminal charges, depending on the amount of the check and the laws in the jurisdiction where the check is drawn.

When a bad check is drawn, the check writer may be charged a fee by their own financial institution. If paying the item puts the account holder in a negative status by a relatively small amount, the bank may choose to honor the check. When this occurs, the account will be overdrawn, and the fees charged by the bank will place an extra burden on the account until the overdraft is covered. If the paying of the item would render the account significantly overdrawn, the bank may choose not to honor the check. The item will be returned to the depositor's bank, and ultimately to the depositor. The amount of the check plus the depositor's bank's fee will be debited from the depositor's account. The depositor then may choose to re-submit the check, hoping it will clear on a second attempt, or else proceed immediately with collection activities, civil or criminal.

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Wikipedia