Process NSF and Stop Payment Customer Checks

Occasionally, you may accept a check from a Customer that gets returned as NSF (non-sufficient funds) by the bank. This often results in your bank charging you a fee, resulting in a greater cost to you than just the amount of the check. Many businesses choose to pass theses fees on to their Customers.

In addition to insufficient funds, there may be situations where a Customer stops payment on a check. This will result in the funds being blocked from your bank account and may result in the same fees for NSF transactions. The process outlined below will help you correctly handle both scenarios.

At a minimum, you need a way to collect Payment from your Customer. If you want to charge the Customer for the NSF, you need a way to add the additional charge(s).

 

Create NSF Chargeback SKUs

Before you can process an NSF Check and charge your Customer for it, you’ll need to set up Trade SKUs for NSF Bank Service Charges and NSF Processing Fees, depending on your business’ preference and process.

1. Go to Inventory
2. Click Create SKU
3. Select Trade SKU as the SKU Type
4. Fill in SKU information so that it makes sense to your business. Here’s an example:
   • My SKU: NSF Bank Service Charges
   • My Description: NSF Chargeback fees associated with returned checks.
   • Category: NSF Chargebacks
     • We recommend creating a SKU Category just for these SKUs so that you can map the correct GL Account to it.
   • Vendor: In House
   • Cost: Leave as zero
   • Vendor SKU: Copy My SKU
5. Click Create SKU
6. On the SKU Profile, click the Edit SKU tile
7. In Options, toggle the Taxable button OFF.
8. Click Save

Repeat these steps for additional NSF Processing Fees, if needed. 

 

Map Inventory to Financials

Now that you’ve created the SKUs and the NSF Chargebacks category, you need to correctly map this category to a GL Account.

1. Go to Setup / Accounting / Map Inventory to Financials
2. Locate the NSF Chargebacks category and choose the appropriate GL Account for Revenue and COGS

 

Process an NSF Chargeback Transaction

When you receive notification from the bank that a check has been returned, you need to process that information in LOU, using the SKUs you created.

 

Step 1: Unapply Original Payment

The first thing you need to do is find the original payment and unapply it from the Invoice. This will reopen the Invoice in Pending Status and leave the Payment as Unapplied.

1. Go to the Customer Profile
2. Go to the Payments Profile
3. Locate the original Payment
4. On the Payment Profile, click Unapply

Now you need to move on to post the Refund against that Unapplied Payment to post the appropriate GL debits and credits to record the returned payment.

 

Step 2: Post Refund Transaction

After unapplying the original Payment, post a Refund and apply to that Unapplied Payment.

1. Go to the Customer Profile
2. Go to the Payments tile
3. Click Create
4. Choose Refund
5. Enter the total amount of the returned check
6. Select Check as Payment Method
7. Enter the original check number with a -NSF in the Reference ID field for future reference and tracking purposes.
8. In the Comment field, enter the original Order ID and Payment ID, plus any relevant information for audit purposes
   • REMEMBER! Adding the original IDs is important because you need to create that audit trail, connecting these transactions
9. In the Refunds box, apply the full amount to the original Payment
10. Click Create
11. Open the original Invoice (which is now Pending)
12. Click Update on Notes and Details Displays to Customer
13. Enter a note indicating the check was returned and the Refund transaction ID. Include any other relevant information.

At this point, you should have the original Invoice in Pending status, the original Payment should show as Complete with the Refund Payment in the Applied On Account box, and the Refund Payment should show as Complete with the original On Account Payment in the Applied On Account box. The Invoice should have a customer-facing note that indicates the original check was returned NSF and the Payment IDs, along with any other information.

Now, you need to create a new Sales Order to capture the NSF Fees.

 

Step 3: Create Sales Order for NSF Fees

You need to create a Sales Order for the NSF fees being passed along to the Customer. Once invoiced, you’ll be able to collect Payment on both the original Invoice and this Invoice to be made whole.

1. Go to the Sales Order tile
2. Click Create
3. Select the Customer, Department, Distribution Method, and Document Type
   • TIP! These should match the original Sales Order
4. Click Create
5. In the SKUs box, add the NSF Bank Service Charges and NSF Processing Fees SKUs to the Order
6. In Displays to Customer Notes, add a note with the original Order ID and Invoice ID, Refund Payment ID, and any other relevant notes for audit purposes.
   • TIP! If you are going to require another Payment Method than check to settle this amount, indicate so in the Notes. Example: “Card or Cash required for this Payment.”
7. Once all the SKUs and Notes have been entered, click Invoice All
8. Confirm

 

Step 4: Send the Customer Statement

You can send both Invoices to the Customer for Payment individually or use the Customer Statement option to send both balances on one link.

1. Go to Operations
2. Go to Customer Statements
3. Locate the Customer Statement
4. Send or Print the Statement

 

Document NSF in Full LOU Accounting

For those of you live on LOU Accounting there are some additional processes to complete within the Accounting features for this NSF transaction. After the POS Station you used to process the NSF transaction is closed for the day, you must process the Refund transaction separate from the rest of your Bank Deposits.

1. In the Accounting tile, go to Bank Deposits
2. Click Create
3. Choose the Bank Account to which the original check was deposited
4. Enter the NSF reference info in Reference Number
5. Post Date should be the date the bank withdrew the money from your account
6. Type is Cash and Checks
7. Enter the total of the NSF check as a negative number
8. Leave an optional Comment if you like
9. Click Create
10. Click Checks
11. Click Search Check Payments History
12. Select the check associated with the Refund you created
13. Click Apply to Bank Deposit
14. Click OK to confirm
15. Click Close
16. Click Post
17. Click OK to confirm posting the Bank Deposit

After creating the Bank Deposit, you need to record the Bank Service Fees as an Expense.

1. In the Accounting tile, go to the Expense tile
2. Click Create / Expense
3. Choose your bank as the Vendor
4. Enter the Date you were charged for the NSF as the Post Date
5. Enter relevant NSF chargeback info in the Reference Number field
6. Enter the Total of the fees charged
7. Choose the Payment Account – this will typically be your checking account.
8. Click Create
9. Click into the Account cell on line 1
10. Choose the GL Account for Bank Service Charges
11. Enter the Amount
12. Choose the Department
13. Enter optional Comments
14. Click Post

After completing the Deposit and Expense, we recommend reviewing GL postings to verify everything is correct.