When it comes to banks and checking accounts, almost every one will offer some type of overdraft fee. Most business owners assume that since they are a business account, they will never need to worry about an overdraft fee.
When it comes to banks and checking accounts, almost every one will offer some type of overdraft fee. Most business owners assume that since they are a business account, they will never need to worry about an overdraft fee. But, this is one fee that your business should constantly be on the lookout for. There will come a time in a business's life that the funds in the checking account will get low, it's just a fact of business life. And, any business can bounce a check once in a while. But, just like with consumers, some businesses will do this more frequently than others, and will see their bank account drain into the negative faster than they can blink. While sometimes it's unavoidable that a check will bounce, the way that your business's bank will process the checks can be another problem all in itself.Let's look at this example:
XYZ Office had $1000 in their business checking. Their accounts payable staff wrote checks totaling $900 for bills for the following amounts: $500, $75, $125, $100, and $100. But, the owner of the company wrote a couple of checks for $400, in the following amounts: $150 and $250, and forgot to tell the accounts payable staff. Let's say that all of these checks hit the business's bank account on the very same day. Most people would assume that the bank would pay all of the checks except the $500 and only bounce it. But, the bank would take the largest of the checks first, leaving the business to pay at least three NSF check fees instead of one. The bank will say that they cleared the larger checks first because they assume these are for more important items, such as mortgages on a building.
For those businesses who might tend to bounce a check here and there, they can sign up for overdraft protection from their bank. This will require that the business have a separate savings account, or line of credit, that the bank can simply pull money from to cover any overdraft on the checking account. While this might incur a fee as well, it will not be nearly as much as those NSF check fees, and the bank will guarantee that the checks will be paid as long as there is money in one of the accounts to cover it. Plus, you won't get another charge from the business that the check was returned to. Keep in mind that you must sign up for overdraft protection with your business's bank, as most banks won't automatically sign you up.
There are forms of overdraft privileges that you won't have to sign up for that many banks will offer automatically once your business has an account with them for a certain time. This is usually called “bounce protection” or “overdraft privilege”. While these might sound like overdraft protection, it isn't. Keep in mind that you have to sign up for overdraft protection, while these are offered automatically from the bank and these are not linked to any other account that your business has with the bank. But, overdraft privileges and bounce protection can actually cost you just as much as the NSF check fees, except that you won't have to pick up the check from the business that returned it.
All banks will not have the same policies when it comes to overdrafts and NSF check fees. You should always read up on your business's bank's policies before it becomes an issue and keep a close eye on your business checking account if you do not sign up for overdraft protection. By keeping a vigilant eye on you checking accounts, you can head off fees before they can begin to rack up and cost your business hundreds of dollars.