How to Handle Returned Checks

Minimizing the impact of NSF checks

The best way to avoid problems arising from NSF debtor payment checks is to use debtor payment release dates on payment transactions. Delaying the release of a debtor payment until a future date will insure that the payment remains in the Trust until the check funds can be safely considered good. With a sufficient release delay, NSF check instances will occur before the payments are reported and disbursed to the client by the remittance process.

Note: If a client's settings permit cost expenditures from debtor payment receipts, only released payments are used to fund the cost transactions.

Therefore, an NSF debtor payment check is not likely to cause implicit co-mingling of client funds if release dates are used.

Processing NSF checks prior to remittance:

If a debtor payment has not been remitted to the client, the accounting steps to enter the NSF are quite simply.

Enter a RtnCk transaction at the Debtor's financial tab. This transaction will present a list of debtor payments made to the account. Select the appropriate payment from the list and CMWin computes the necessary reversing entries. Because the RtnCk was entered before the payment was remitted, all associated funds are present in the Trust Account and are automatically handled. No other steps are needed.

Processing NSF checks after remittance:

If release dates are not used, the accounting steps are somewhat complex as explained below.

Note: In certain accounting situations, not using release dates can lead to negative trust account balances. Usually, a negative trust balance in CollectMax does not mean a bank overdraft condition because funds for other clients may also be in the same trust account. However, a negative trust balance for a client implies tacit borrowing from some other client's funds. This is implicit co-mingling and should be remedied promptly.

When the RTNCK transaction is entered, the resulting trust balances are examined by CMWin and a warning message is presented to the user about the negative Trust Bank condition. If the negative balances are not offset by additional debtor payments or by the RtnCkR reimbursement transaction, remittance processing cannot be completed for the client.

If a debtor payment check is returned after it's remittance to the client, special procedures are necessary.

Open the associated claim account and enter a RtnCk transaction targeted to the payment that went NSF. This fixes the claim balances and removes the payment amount from the trust account. If insufficient money exists in the trust account, a warning message will be presented to the user, and negative balances will result for the associated claim account.

Note: If there are payments from other debtors for the same client and multi-claim accounting (Option 1) is used, it may not be necessary to proceed further. Payments from other debtors within the scope of a client account can be used to offset the NSF check and avoid negative balances at the client level.

Note the amounts applied to commissions, etc. The RtnCk transaction history detail shows a detailed breakdown of the allocation balances affected.

If a gross remittance has been done and reimbursement from the client will take a while, then enter a CEX at the claim level for the full amount of the payment using the NSFC reason code. By using the NSFC reason code, the check will be drawn on the firm operating account. Make the resulting check payable to the firm. (If using the CMWin checkwriting feature, you will need to create a new payee for the firm.) This check will then be deposited in the trust account in below.

If a net remittance has been done and reimbursement from the client will take a while, then enter a CEX at the claim level for proceeds and costs recovered sent at remittance time using the NSFC reason code. By using the NSFC reason code, the check will be drawn on the firm operating account. Make the resulting check payable to the firm. This check will then be deposited in the trust account.

Review the account history to obtain the transaction # on the RTNCK transaction. Enter a RtnCkR transaction, enter the RTNCK transaction number in the RtnCk# field and select the "Reimb. from Firm for NSF check" funding selection. The Ck# field is meant for the number of the check we are depositing to trust and click Continue button. Apply monies to allocation balances as needed to reimburse the NSF check. These allocation balances apply to the trust account.

Deposit the check from the firm into the Trust account.

Note: This process has implemented a short term loan from the firm to the client in order to avoid implicit co-mingling of client monies caused by negative balances.

Note: When the CEX transaction was entered in above, an invoice item was generated that could be used to invoice the client for reimbursement of the short term loan. You may wish to print an invoice or process a Remit Statement to produce a bill for your client. The invoice item could be satisfied either by a check from the client or a subsequent remittance could generate enough funds to close it.

NSF debtor checks and costs funded from debtor payment receipts

If the client accounting option has been selected to use debtor payment monies to fund court costs, an NSF check entry can result in negative trust account balances prior to remittance. To remedy the condition, use the sequence of accounting entries described below to produce a check from the firm operating account, deposit the check into the trust account, and bill the client with a RtnCkR transaction.
If the client accounting option to use debtor payment monies for costs has not been selected, the RtnCkR transaction is used only for remitted payments that have been returned NSF. Prior to remittance, the payment monies are held in trust and can be simply reversed by a RtnCk entry and the RtnCkR entry is not needed.