Dishonoured cheque

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.

When a bad check is written, 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.

If the dishonored check has been scanned and replaced by a substitute check, the original check is not returned to the depositor, but instead the substitute check will be marked "not sufficient funds" and returned to the depositor. The recipient may choose not to accept checks in the future from the writer (typically recorded on a paper or electronic "Do not accept checks from..." list), or may suspend the check-writer's privileges until the check-writer has made good on the debt. The recipient may also choose to report the writer to a database service. This may lead to other merchants in the future refusing to accept checks from the writer or a joint account holder, or the writer having trouble obtaining a checking account at another bank. If a merchant or other place of business receives too many bad checks from customers, it may simply decide to not accept any checks at all from anyone.

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.

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Wikipedia