How to Record a Returned Payment or Bounced Cheque in QuickBooks Online?

Introduction

A returned payment or bounced cheque occurs when a bank refuses to process a cheque, typically due to insufficient funds, incorrect account details, or account restrictions. Other causes may include signature mismatches, expired cheques, stop payment requests, or closed accounts. These situations not only disrupt cash flow but can also create accounting discrepancies that need to be corrected promptly to keep financial records accurate.

Before recording a bounced cheque in QuickBooks Online, it’s important to gather key details such as the cheque amount, bounce date, customer information, and any related bank fees. Being prepared with these essentials ensures a smoother correction process and helps maintain transparent communication with customers. Here are 5 simple steps that will help you record a return payment or a bounced cheque in QuickBooks Online.

Step 1: Reclassify the Returned Payment to Reopen the Invoice

The first step is to categorize the bounced cheque correctly so the original invoice becomes open again and reflects that the payment didn’t go through.

1. Sign in to your QuickBooks Online account.
2. Click Transactions, then choose Bank transactions.
3. Locate the bounced cheque in your bank feed and click it to expand the details.
4. In the Supplier/Who paid you dropdown, select the customer whose cheque bounced.
5. For the Category, choose Accounts Receivable (A/R).
6. Fill in any other required fields and select Add.

Note:  If you don’t see “Accounts Receivable,” click + Add new category and add it manually.

This creates an expense entry and reopens the original invoice by offsetting the payment.

Note: In case the returned payment hasn’t appeared in your bank feed yet, you can manually create an expense and match it to your bank record later.

Step 2: Remove the Bounced Payment from the Invoice

Next, you’ll need to unapply the original payment that was made with the bounced cheque.

1. Go to Sales, then click Customers.
2. Select the customer whose payment bounced.
3. Locate the payment linked to the returned cheque and click View/Edit.
4. Click the payment made link to open the transaction details.
   Note: If you don’t see this link, you may already be in the “Receive Payment” window. Proceed to the next step.
5. Uncheck the box next to the original invoice (the one the bounced cheque was applied to).
6. Check the box next to the expense you created in Step 1.
7. Click Save and close.
8. A prompt will appear, noting that this transaction is linked to others. Choose Yes to continue.

This disconnects the payment from the invoice and associates it instead with the expense.

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Step 3: Invoice Your Customer for the Bank Fees

If you want to charge the customer for the fees your bank charged you, you can create a new invoice.

1. Click + New, then choose Invoice under the “Customers” section.
2. From the Add customer dropdown, select the customer who bounced the cheque.
   Note: If you’re using the older invoice layout, use the Customer dropdown instead.
3. Set the Invoice date to the date when the bank charged you the fee.
4. In the Product/Service column, choose Bank Fees Charged to Customer.
5. Enter the amount you’re charging the customer.
6. Click Save and close to complete the invoice.

1. If this service doesn’t exist yet:
   • Click + Add new.
   • Choose Service as the type (or pick it from the dropdown).
   • Name it “Bank Fees Charged to Customer”.
   • For Income account, select Other Income. If not listed, click + Add new to create it.
   • Click Save and close.

Step 4: Send a Statement to Your Customer

Once everything is recorded, send a statement to inform your customer of their outstanding balance, including the re-opened invoice and any additional fees.

1. Go to Sales, then click Customers.
2. Select the customer’s name to open their Transaction List.
3. Click the New transaction dropdown and select Statement.
4. In the Statement type dropdown, pick Balance Forward.
5. Set the Statement date, Start date, and End date.
6. Click Print or Preview to review it, or select Save and send to email it to the customer.

This gives the customer a full breakdown of what they still owe, including the original invoice and any fees you’ve added due to the bounced cheque.

Note: These steps involve a few accounting actions. If you’re unsure, it’s best to Cheque in with your accountant for help.

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What are the Common Causes of Bounced Cheques?

Here are the reasons why your cheque bounced:

• Account lacks enough money to cover the Cheque.
• Errors in routing or account numbers result in processing failures.
• Holds or freezes due to suspicious activity can lead to bounced cheques.
• Cheques older than six months are typically rejected by banks.
• Missing or mismatched signatures trigger bank rejections.
• Technical issues or delays within the bank may cause temporary returns.
• The cheque issuer may stop the transaction before it’s processed.
• Cheques issued from inactive or closed accounts automatically bounce.

What are the Prerequisites to Record a Returned Payment or a Bounced Cheque?

To complete this process, make sure you have:

• Cheque Amount
• Date of Bounce
• Customer Details
• Bank Fees Charged
• Invoice Status
• Customer Fee (Optional)
• Statement Prep
• Account Access

How to Prevent Cheques From Bouncing in QuickBooks Online?

Users must follow these tips to avoid a cheque bounce in QuickBooks Online:

• Always ensure there are sufficient funds in your account.
• Double-check account numbers, routing numbers, and payee names.
• Set up reminders in QuickBooks Online for due payments and deposits.
• Use QuickBooks to regularly reconcile bank statements and monitor check statuses.
• Connect your bank account to QuickBooks Online for real-time updates.
• Issue checks within a valid timeframe (usually under 6 months).
• Clarify payment timelines to prevent accidental delays or insufficient funds.

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Conclusion

Recording a bounced cheque in QuickBooks Online is done by reclassifying the payment, updating the invoice, invoicing for bank fees, and sending a statement. You can keep your records accurate and stay on top of your finances. Make sure to gather all necessary details beforehand and take steps to prevent future cheque issues to avoid disruptions in your cash flow.