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 a Trade SKU to be used for NSF Chargeback items. You’ll use this SKU to capture the amount of the original Order. Additionally, you’ll need to set up a Trade SKU 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 Chargeback
   • 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 Bank Service Charges and 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.

 

Post Refund Transaction

The first thing you’ll need to do is process a refund transaction to create the appropriate General Ledger postings for debits and credits to record the returned payment.

1. Go to the Payments tile
2. Click Create
3. Choose Refund
4. Enter the total amount of the returned check
5. Select Check as Payment Method
6. Enter the original check number with a -NSF in the Reference ID field for future reference and tracking purposes.
7.  In the Comment field, enter the original Order ID and Payment ID, plus any relevant information for audit purposes 
8. Click Create
9. Open the original Invoice
10. Click Update on Notes and Details Displays to Customer
11. Enter a note indicating the check was returned and the Refund transaction ID. Include any other relevant information.

 

Create Sales Order for Original Amount Plus NSF Fees

You need to collect payment for the Order as well as any NSF fees and charges you want to pass on to the Customer. To do this, you’ll use the Trade SKUs you created.

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 Chargeback SKU
6. On the SKU line item, click Actions / Update
7. Change the Price to the amount of the returned check
8. In the SKU Description, add the original check number, Payment Date, and NSF notification information
   • REMEMBER! Updating Price and Description here only applies to this order and will not impact the SKU elsewhere. 
9. Click Save
10. Add the NSF Bank Service Charges and NSF Processing Fees SKUs to the Order
11. 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:
12. Once all the SKUs and Notes have been entered, click Invoice All
13. Confirm
14. Message the Invoice to the Customer or Print to mail the Invoice.

 

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.