Record a returned payment or bounced cheque

Learn how to use an expense to record a customer's bounced cheque in QuickBooks Online. Or follow these steps if you need to record one of your own bounced cheques.

If a customer's cheque bounces, there are a couple of ways to handle the accounting. You'll use an expense to create a record, balance your accounts, account for any bank fees, and re-invoice your customer. Or, if you prefer, you can record a bounced cheque with a journal entry.

Note: These steps are complicated. If you're unsure, reach out to your accountant. This can get tricky and they know how to handle the next steps.

Here’s what you’ll need

• The amount of the customer's cheque that was deducted from your bank balance.
• The fee your bank charged you so you can charge your customer (this is up to you).

Step 1: Recategorise the bounced payment to reopen the original invoice

First, recategorise the bounced payment to reopen the invoice. This action will create an expense, accounting for the deducted money and keeping your records accurate.

1. Sign in to your QuickBooks Online account.
2. Go to Transactions and select Bank transactions (Take me there).
3. Find the bounced cheque or returned payment in the bank feed. Select it to expand the transaction details.
4. In the Supplier/Who paid you ▼ or Supplier/Who you paid ▼ dropdown, select the customer whose payment bounced.
5. In the Category ▼ dropdown, select Accounts Receivable (A/R), and fill out any required fields.
   Note: If you don't see this category, select + Add new category to add it.
6. When you're done, select Add.

This offsets the unpaid invoice. If you don’t have a bank connected to QuickBooks or the returned payment has not shown up yet, you can make an expense for this transaction and then match it to your bank at a later time.

Step 2: Unapply the bounced cheque payment from the original invoice

1. Go to Sales and select Customers (Take me there).
2. Find and select the customer whose payment bounced.
3. Find the payment for the bounced cheque and select View/Edit.
4. Select the payment made link. Note: If you do not see this link, you might be in the Receive Payment window. Please proceed to step 5.
5. Uncheck the checkbox for the invoice that the payment had been applied to.
6. Select the new expense you created in Step 1.
7. Select Save and close.
8. A message displays saying that the transaction is linked to others. Select Yes.

Step 3: Create an invoice for the bank fees to charge your customer

1. Select + New.
2. Under Customers, select Invoice.
3. Select the Add customer ▼ dropdown and select the customer whose payment bounced.
   Note: Select the Customer ▼ dropdown if you are using the old invoice layout.
4. For the Invoice date, use the date the bank charged the fees.
5. In the Product/service column, select the service Bank Fees Charged to Customer. If this service doesn’t exist:
   1. Select + Add new.
   2. Select Service as the type.
      Note: If you don't see this option, Select the type from the Item type ▼ dropdown.
   3. In the Name field, enter Bank Fees Charged to Customer.
   4. In the Income account ▼ dropdown, select Other Income. If you don’t see this income account, select + Add new to add it to your chart of accounts.
   5. Select Save and close.
6. Enter the amount you want to charge the customer for the bounced payment.
7. Select Save and close.

Step 4: Send a Statement to your customer

1. Go to Sales and select Customers (Take me there).
2. On the Customers tab, select the name of the customer who issued the bounced cheque to open the Transaction List.
3. In the New transaction ▼ dropdown, select Statement.
4. In the Statement type ▼ dropdown, select Balance Forward.
5. Set the Statement date, Start date, and End date.
6. Select Print or Preview to make a copy of the statement, or select Save and send to email the customer with the statement attached.

After you forward the statement to your customer, they know what they owe and why. The statement tells them there's still an open invoice and a second invoice to cover the bank fees and any fees you're charging them for the bounced cheque.

Once they pay you for the original invoice and the bank fees, you can follow the normal steps to receive their payment.