Return Item

A return item is a negotiable instrument, most commonly a cheque, that has been sent to the bank it was drawn on for collection and payment but is sent back unpaid rather than honoured. The most frequent reason is that the account did not have sufficient available funds to cover the amount, though a cheque can also be returned for reasons such as a missing signature, a mismatched amount in words and figures, a stale date, or a stop payment instruction already placed on it by the account holder before it was presented.

When a cheque is returned, the bank that deposited it reverses any provisional credit it may have given the depositor, and the depositor's account is typically charged a returned-item fee for the trouble. The person who wrote the original cheque also usually faces consequences, ranging from a non-sufficient funds fee to, in cases of repeated returns, closure of their account or referral to a database such as ChexSystems that other banks consult before opening new accounts.

If someone writes you a cheque and their account does not have the money to cover it, the cheque bounces back to your bank unpaid. That bounced cheque is a return item, and both you and the person who wrote it are likely to be charged a fee because of it, even though neither of you directly caused the bank to incur any real cost beyond processing.

• Insufficient or uncollected funds in the payer's account at the time the item is presented for payment.
• Errors on the instrument itself, such as a missing endorsement, signature or mismatched written and numerical amounts.
• A stop payment order placed by the account holder before the item was presented to the paying bank.

A single return item is usually treated as a minor, if costly, inconvenience, but a pattern of frequently returned items can damage a customer's standing with their bank and make it harder to open new accounts elsewhere. Under the Check 21 Act framework in the United States, returned cheques can now be processed and returned electronically rather than physically, speeding up notification to the depositing bank considerably compared with the old paper-based system.

If funds from a returned item were already spent by the depositor before the return was discovered, the resulting shortfall becomes the depositor's own overdraft problem with their bank, not something the original payer is automatically obligated to cover beyond the face value of the bounced cheque itself. This is why businesses accepting large or unfamiliar cheques often wait for confirmed clearance before releasing goods or services, rather than treating a provisionally credited deposit as guaranteed, final payment.

Before electronic clearing became standard, a returned cheque could take several days to physically travel back from the paying bank to the depositing bank, leaving depositors uncertain for an extended period about whether a large cheque had genuinely cleared. Electronic image-based clearing under frameworks such as Check 21 has compressed this timeline considerably, meaning both the decision to return an item and the notification of that return now typically happen within one to two business days rather than the week or more that was once common under the older, fully paper-based system.

For a business that regularly accepts cheques from customers, a meaningful rate of returned items can create real cash flow problems, since revenue the business believed it had already collected can suddenly disappear from its account days after being recorded as received. Many businesses now use electronic verification services at the point of sale to check an account's likely ability to cover a cheque before accepting it, reducing, though not entirely eliminating, the risk of later having to treat an accepted payment as a return item.