How do you account for returned checks?

From time to time, I get asked about the best way to handle returned checks. Let’s take a look at a couple things I always recommend.

Do post the returned check to the customer’s account

Some utilities choose not to post the returned check to the customer’s account, instead holding the check until the customer honors it with cash. This is a bad business practice for several reasons.

The history of past returned checks is often used to decide whether to continue accepting checks from a customer. If previous bad checks aren’t in the system, this becomes more difficult to determine. If your ordinances or policy allows for it, a history of returned checks can be reason to charge or increase a security deposit.

If the returned check isn’t part of the customer’s balance, it can be overlooked when charging late fees and selecting accounts for the cut-off list.

If you offer a fully integrated online bill pay system the customer can see their balance and honor the returned check with an online credit card payment.

Also, be sure you add the returned check fee to the customer’s account. This is just as much a part of what they now owe as the returned check itself.

Don’t reverse the original payment

Many billing systems go to all the trouble of reversing the original payment when a returned check is processed. With these systems, if a check is returned that was originally applied to services in multiple funds (for example, electric, water, and garbage), the system will debit the accounts receivable and credit the cash accounts in each fund.

I recommend using a single returned checks receivable account

Rather than doing all that, I recommend using a single returned checks receivable account. In a multiple fund environment, this is usually in the General Fund (following the theory that processing returned checks is a general administrative task). However, if your receivables are heavily skewed toward one of your enterprise funds, you could choose to put the returned checks receivable account in this enterprise fund.

Why use a returned checks receivable account?

The case for using a returned checks receivable account can be made for a couple reasons:

Reinstating the original accounts receivable technically isn’t a correct accounting practice because you did collect the bill, but the check bounced.

By tracking returned checks separately, you are maintaining a subsidiary ledger of all outstanding returned checks. At any point in time, adding up all your returned checks should agree with the balance of the retuned checks receivable account.

Need assistance?

If you have questions about processing returned checks or any other part of your office operation, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help your utility.

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© 2015 Gary Sanders

What are these barcodes on my bills?

Sometimes, when doing a sales presentation, I will ask if a utility prints payment barcodes on their bills. On more than a few occasions, I’ve had people confuse the postal barcode with a payment barcode.

What are the differences between the two? Let’s take a look…

Postal barcodes

Postal barcodes are the most common barcode found on utility bills. These barcodes, known as Intelligent Mail barcodes (IMb), are used by the Postal Service for sorting mail using high speed optical scanners. In order to receive any type of postal discount for your mailings, you must print the IMb on your mailpiece.

Placement of the IMb depends on the type of bills you print. For post card bills, the IMb can print either print immediately above or below the address block or in the lower right corner of the bill. If you print full page bills, either in-house or using an outsource printer, the IMb will print immediately above or below the address block, so it shows through the window envelope.

An IMb barcode is composed of four distinct symbols (tracking region only, ascending, descending and both ascending and descending) and looks like this:

Intelligent Mail barcode

Payment barcodes

Payment barcodes are used to expedite the process of entering payments. These barcodes generally encode at least the customer’s account number and amount due.

When entering payments in a system configured for processing barcodes, the user merely scans the barcode rather than keying in the customer’s account number. This can be used by cashiers handling walk-in payments or by a customer service representative entering mail payments in batches.

Payment barcodes generally look more like a traditional barcode (not unlike the UPC barcode used by most grocery stores) composed of narrow and wide bars of uniform height. Here is an example of a payment barcode:

Payment Barcode

Need assistance?

If you have questions about printing bills, processing payments or any other part of your office operation, please give me a call at 919-232-2320 or e-mail me at gsanders@logicssolutions.com to learn how a business review could help your utility.

Click here to subscribe to my free, bi-weekly e-mail newsletter...

© 2015 Gary Sanders