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Finding information on the costs of NSF fees for consumers is easy. A quick google search will find the topic covered at length. However, sourcing those same resources for business owners isn’t nearly as fruitful.
In other words, for businesses looking to gain a deeper understanding of the actual cost of NSF fees and how they affect the bottom line, that information is hard to find. This got us thinking about why. And we believe we have found the answer.
The reality is that merchants find it challenging to quantify the qualitative, especially when it comes to the actual costs of NSF fees. For example, a business must first identify the manual processes surrounding the failed payment from start to finish. There is much more to consider than simply the cost of a failed payment transaction fee.
As a result, we committed to breaking down the chain reaction caused by an NSF and sharing what we found out. Keep reading to learn more.
An NSF or non-sufficient funds cheque is a cheque or payment returned due to lack of available funds in the payor's account. While the terminology of an NSF cheque might vary, bad cheque, bounced cheque, or rubber cheque, it all means the same. The payment has failed. And although paper cheques are fast going out of fashion, NSF fees are not. More often than not, today's NSF fees stem from automated Electronic Fund Transfer (EFT) payments or pre-authorized debits (PAD) transactions.
ABC Utility Company and the consumer have set up automatic payments for their monthly phone bills. With automatic payments in place, the consumer falls into a “set and forget it” mindset, while at the same time, ABC Utility Company has guaranteed they will receive funds owed on time. Or have they?
The challenge occurs when ABC Utility Company processes the monthly transaction, and the customer bank determines there are insufficient funds in the account to cover the cost of the payment required. The bank then charges a fee to ABC Utility Company for the consumer’s inadequate funds.
In turn, ABC Utility Company charges the customer the bank fee on top of a fee for the work involved in handling the NSF transaction.
The customer, with their “set and forget” mindset combined with the inability to efficiently manage their transactions and cash flow, was unaware that they did not have the funds on the day of withdrawal. The customer becomes frustrated with the extra charges and the hassle. *Oftentimes, NSFs can be prevented if the transaction occurs a day or two later.
Meanwhile, all the funds owed to ABC Utility Company, including the bank NSF fee, remain outstanding. In addition, its accounts receivable team would be spending their time working through the manual process of tracking the transaction and chasing up the customer; all the while, the customer service department would be working diligently to appease an unhappy customer experience.
To try and put this transaction to bed, the merchant adds all funds owed to the next billing cycle and initiates the same process the following month in hopes of a better outcome.
Luckily for ABC Utility Company, the funds are available the following month, and all is well. The company recoups the cost of the NSF transaction and receives adequate compensation for all the work involved. Or did they? While this might sound like a relative win from a financial standpoint, there’s much more to consider.
Before automation, the process was archaic. When you consider how payment processing was done in the “good ole days.” We would send them a list, and someone would manually enter every payment into the system. Company supervisors would lose anywhere from two and a half to four hours completing NSF reconciliations every Monday morning. It is hard to believe this is common practice in the industry.
Mike Jones, CEO
Putting aside the qualitative for a second, let’s talk cold hard cash (flow). Sure, profit is nice, but you can’t find a better metric than cash flow. Being able to access cash and tracking the flow in and out of your business is what will keep the lights on.
Consider the failed payment scenario outlined above. In this case, it could take ABC Utility Company anywhere from four to eight weeks to collect the funds owed and the fees charged from the bank charge. This extra lag time hits companies where it hurts the most–available cash flow. NSF fees are well recognized for disrupting companies with big invoices to pay on a tight budget.
Now factor in the workforce resource costs that may also be wreaking havoc on a business's cash on hand. While the accounts receivable team is doing the heavy lifting, spending valuable time chasing payments down, they aren’t focusing on strategies that could increase the company’s cash flow. Shifting their focus on enhancing the organization’s collections processes or identifying companies altering their payment practice would prove more beneficial. Dealing with NSFs has a company operating more on defence than offence.
The truth is, despite our digital-first world, NSFs create a significant amount of “paperwork” that adds to the accounting department’s workload.
Reduce and prevent NSF fees. Process payments faster. Track transactions quickly and stay on top of cash flow. Find out right away if the funds are in the account and put an end to NSFs.
With VoPay’s Intelligent EFT / ACH (iQ11) payment solution, merchants can instantly validate and authenticate the bank account information, available funds and financial data at the time of the transaction.
There are four simple ways VoPay’s Fintech-as-a-Service will help put a stop to NSFs and improve your cash flow:
✔️Account Authentication
Prevent fraud and rejected transactions from incorrect account information
✔️Balance verification
Verify balances significantly reduces NSF and return transactions
✔️Express funds delivery
Instant verification of funds reduces transaction processing time.
✔️Transaction validation
Proactively trace and verify transaction processing status
