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The Very Real (and Hidden) Costs of an NSF

Non-sufficient funds, NSF, and insufficient funds all mean the same thing and are fairly self-explanatory: a lack of funds in one’s account to cover a transaction. When a transaction or payment attempts to go through an account, the bank takes time to compare how much money is in the said account versus how much money is required for the payment. When there is a lack of funds, the bank either rejects (NSF) or allows (overdraft) the transaction to go through. Both options have costly repercussions, especially on businesses.

Interestingly, there are plenty of articles on the cost of an NSF for consumers—and how to avoid insufficient funds in personal bank accounts with overdraft protection and proper budgeting—however, there isn’t much information out there for businesses. 

Business owners are the ones most likely to incur the very real and highly damaging costs of an NSF and that’s what we’ll talk about today. 

The real cost of an NSF for business owners

Charging NSF fees are good and very bad for business

Let’s quickly look at the repercussions of a “bad cheque” (or check), for example, on a customer. This is important because the business and consumer are inextricably linked and are often one and the same (as in business-to-business B2B relationships).

According to Nerd Wallet, some U.S. states allow businesses and merchants to charge customers up to $30 for handling costs of an NSF. On top of this cost, the banks can also charge the consumer a fee of around $30. That consumer now owes $60 in processing fees on top of the original amount, which has yet to come out of their bank account—and may eventually require legal action and collections agencies, which could damage their credit rating. 

For a business owner, that ability to charge customers for NSF fees is both good and bad for business, depending on how you look at it. Hitting customers with NSF fees, of course, is not a great way to build a good brand reputation, credibility, or encourage repeat, loyal customers. The same applies if the business and consumer are one and the same in a B2B relationship. For example, if a business owner pays a contractor or landlord with a “bad cheque” their reputation and credibility are on the line at the very least. 

Regardless of whether the business owner can, in fact, collect a fee for the bounced or bad cheque, this is still not the most costly offence of an NSF. 

The real cost of an NSF: Disrupting a business’ (cash) flow 

Beyond fees and reputation damage, the actual cost of an NSF for businesses is the damage that it does to its regular business flow. That is the daily workflow, transactions, accounts receivable, and above all else, the available cash flow. 

Slow turnaround time of banks and cheques

Let’s say that a small business budgeted for a certain large payment to come in at the beginning of the month and planned their cash flow, projects, bills, and other payments according to that invoice. They receive the cheque on time and mail it to the bank to be processed. Several weeks later, they receive a notice that the cheque bounced and that they owe a processing fee. 

The tardiness of this NSF notice is the first and perhaps biggest offence. Had the small business owner known that the cheque was bad weeks ago, they could have adjusted their cash flow, budgets, and bills accordingly—and simply not gone through with the transaction (or tried billing a different account). 

Worse, the customer could be long gone or difficult to track down, now that the quid pro quo doesn’t apply. Also, if a trusting relationship wasn’t previously established, the business owner could be out of luck for this payment or have a difficult and expensive time collecting. 

The cash flow cost of an NSF

This slow turnaround time can be detrimental to the available cash flow for businesses, especially those on a tight budget, large invoices, and many bills. There is, of course, always the risk of not getting paid or having to spend valuable time and money doing accounts receivable—and chasing people down for money weeks after the fact. 

Eliminate the risk of an NSF for businesses and consumers

Here at VoPay, we’ve found a solution to eliminate the risk for businesses and digitize bank payments. Our platform tells the business right away if there are sufficient funds in the customer’s account immediately—without ever sharing bank account details or introducing security risks.

VoPay uses open banking technology to authenticate EFT and ACH transactions instantly with lower transaction fees than a credit card. This allows businesses to reduce and prevent NSF fees, process payments faster, track transactions easily and stay on top of cash flow.

Learn more about VoPay today.

Tags : Insufficient FundsNon-Sufficient Funds
Philipp Postrehovsky

The author Philipp Postrehovsky

VoPay CMO: Philipp is a product visionary, brand builder and an award-winning marketer who has been involved in the Vancouver tech scene for over 15 years. In 2013 he co-founded RentMoola, which continues to be one of North America's leading fintech companies with the mission to eliminate the rent cheque and modernize rent collection for the enterprise. Before that, he was a brand leader for Mogo Technologies and Wonga Canada and began his career at Electronic Arts. Most recently, he led the marketing team at Progressa which was No. 11 on the 2019 Growth 500 ranking of Canada's Fastest-Growing Companies. He is the founder of Grind For Kids, a program that raised over $1 million for BC Children’s Hospital Foundation and sits on the Board of one of BC’s top independent schools.

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