How to Improve NSF Collections While Lowering Collection Costs

By Guest Contributor Max Newman

This article outlines how you can collect more NSF payments at a lower cost.

In 2017 consumers in the United States paid $34.3 billion to financial institutions in Nonsufficient Funds (NSF) fees1; bad checks where the balance in the account being drawn was insufficient to cover the check. Every business accepting checks for payment can be affected. Merchants spend millions of dollars trying to collect money on accounts with NSFs. A second re-presentment by the Bank may fail if funds have not been deposited into the account. The merchant’s bank also charges the merchant an NSF fee when a payment bounces

Some history

For decades thousands of Collection Agencies across the United States have used hard core tactics to help businesses get their money. The cost of collections was absorbed by the Merchants who received only 60 to 70 percent of the original amount of payments. Low rate of collections has always been the norm.

Years ago, the National Automated Clearing House Association (NACHA) instituted rules to help Merchants with their NSF problem. They authorized Third Party Companies to recover NSF checks for businesses at a very low cost or at no cost to Merchants. New NSF Recovery Companies could re-present NSF checks up to two (2) times and not charge Merchants NSF fees and pay them 100% of the face amount upon collection.

Recovery rates skyrocketed. The new Third-Party Recovery Companies developed smart software that recovered 50 to 70% more than Banks could offer with their second re-representment; and the Merchants paid no NSF fees. Third Party Recovery Companies flourished until 2001. The horrific and tragic events of 9/11/2001 changed everything.

Even the payments industry was affected. Paper checks that had been transported between Banks by airplanes and trains and trucks were delayed for days. Then in 2002, President Bush signed into law a major change allowing images of checks or “substitute checks” to be sent via secure Internet between Banks.

At the same time ACH and EFT Drafts were growing rapidly in the recurring transaction and bill pay industries. The number of checks written were going down and being replaced by these direct forms of payment. Unfortunately, these ACH/EFT payments bounce at a higher rate than paper checks. Some Third-Party Recovery Companies added recovery of ACH/EFT declined payments.

After about 2004 Recurring Payments and Bill Pay industries began moving more and more transactions over to Debit and Credit Card transactions, which bounce more than ACH/EFT transactions. The Collection and NSF Recovery industry was slow to react to this new type of NSF issue. Because it involved a completely different network and platform for Recovery, few in the Collections and NSF Recovery Industry worked on this developing credit and debit card NSF Payment issue.


Finally, in 2010, the electronic NSF Clearing House for recovery of all declined transaction types was introduced to Merchants in different parts of the Country. Merchants that accept payments other than cash, can choose a single entity to electronically recover all payment types that bounce.

How is the electronic NSF Clearing House different than regular Collection Agencies?

  1. Electronic Recovery is complete with a high rate of recovery in 7 to 21 days. Collection Agencies usually take 30 to 90 days (or longer 180 days) with very low collection rates.
  2. Electronic Recovery can be totally free for Merchants and pay them 100% of face amount, while Collection Agencies keep 25 to 40% of the face amount upon recovery.
  3. NACHA and Visa/MasterCard Rules are followed by the electronic NSF Clearing House with no intrusion to authorized NSF account holders. Collection Agencies are required to write letters and can make phone calls which occasionally end up as ugly confrontations with authorized NSF account holders.
  4. Most importantly, Collection Agency success rates are generally in the 10 to 20% average range, whereas, collection rates of 70% and higher are likely on electronic NSF Clearing House Recoveries.

Why use electronic NSF Clearing House to recover NSF payments? An even better question is why not?

  1. There can be no cost for Merchants to utilize the recovery platforms.
  2. There are no additional NSF Bank fees to pay.
  3. Short cycle for recovery; 7 to 21 days.
  4. System can be fully automated to receive NSF declines and to automatically reimburse full payments when collected.
  5. No intrusion-no letters or phone calls where cancellations usually take place.
  6. No fees, no risk.

The name given to providers using the electronic NSF Clearing House is 3rdParty Presenters (3PPs). As you search for a 3PP here are some key points to evaluate in your selection process:

- Many 3PPs specialize in only one or two of the following NSF categories:

  • Checks
  • ACH payments
  • Debit and Credit cards

Make certain the 3PPs you evaluate handle all the activities that fit your business. The following word string may help you identify 3PPs from a web browser “Companies that represent NSF checks, ach, debits“

- What is the rate the 3PP charges for collections?

- Does the 3PP absorb the bank charges for re-presenting the NSF items?

Requirements to enroll in electronic NSF Clearing House recovery:

A proper authorization in advance of the transaction by the account holder is required with proper language (similar to NACHA requirement on recurring ACH and Visa/Mastercard on recurring credit/debit card transactions). The language must advise what will happen if the transaction is returned NSF and also state that a recovery fee, as allowed by law, will be charged upon recovery. On checks, notification via website, posted at the point of sale or typed on the invoice is the only requirement.

Electronic NSF Clearing House recoveries have been effective for nearly 10 years, saving Merchants millions of dollars in collection costs and increasing cashflow dramatically. Every recurring biller, every business to business merchant (distributor, wholesaler), every large and small retailer and every utility can easily subscribe to electronic NSF Clearing House recovery for high tech results

Max Mitchell Newman is an attorney and active entrepreneur who resides in Tampa, Florida. To contact Max or for more information on this subject please contact him at or by phone at (813) 380- 5700. Learn more about Max Here

1 Market Watch, April 2, 2018 Overdraft fees haven’t been this bad since the Great Recession

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