A RUBBER CHECK English meaning

This is particularly true if the transaction takes place between businesses with a pre-existing contractual relationship. Some contracts will contain clauses that punish either party for rendering a rubber check, such as by entitling the recipient to a discount on the services rendered. Other approaches, such as accruing interest on the amounts unpaid, are also used.

• In the meantime, he suspends business with ABC and requests interest from ABC for its unpaid balances.
• Steve is the manager of a wholesale distribution company which sells to various retail outlets throughout his local community.
• This is particularly true if the transaction takes place between businesses with a pre-existing contractual relationship.
• In the United States, it is not a crime to inadvertently write a check that cannot be processed due to insufficient funds or a subsequent stop-payment order.
• A rubber check also causes bank fees for the maker of the check and for the depositor of the check.

To his surprise, however, Steve finds that the checks given to him by ABC were actually rubber checks. Each time he tries to cash them, the checks fail either for lack of funds or because stop-payment orders were placed by ABC after the checks were rendered. While inadvertent rubber checks are generally left unpunished, systems are in place to detect willful or repeat offenders. Through databases such as TeleCheck and ChexSystems, banks and other financial service providers can monitor the frequency with which a given person or company issues rubber checks.

What Is a Rubber Check?

To help mitigate against this risk, banks often offer overdraft protection policies which allows customers to avoid these fees if they accidentally issue a rubber check. A rubber check is a check that is not paid (or honored) by the bank on which it is drawn. The reason the check is not paid is the maker’s account had insufficient funds or not sufficient funds (NSF). Instead of the check being paid, it will be returned (or bounced back) through the banking system. Because the check was bounced back by the bank, the check is described as a rubber check.

A rubber check also causes bank fees for the maker of the check and for the depositor of the check. If the fees are overlooked initially, they will be adjusting items to the balance per books in the bank reconciliation. When the size or frequency involved becomes sufficiently large, individuals who routinely write rubber checks may find themselves faced with criminal charges. In the United States, doing so deliberately can be viewed as a form of fraud, which in some states is classified as a felony offense. If a rubber check is not redeposited by the payee, the payee must also reduce its general ledger cash account for the amount of the check (and also debit another general ledger account). Steve is the manager of a wholesale distribution company which sells to various retail outlets throughout his local community.

Real World Example of a Rubber Check

For example, if you wrote a check for $100, but only had $90 in your checking account, the check would bounce. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

• A rubber check is a check that is not paid (or honored) by the bank on which it is drawn.
• A rubber check is a check that has been rejected by the bank on which it was drawn.
• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
• Through databases such as TeleCheck and ChexSystems, banks and other financial service providers can monitor the frequency with which a given person or company issues rubber checks.
• To help mitigate against this risk, banks often offer overdraft protection policies which allows customers to avoid these fees if they accidentally issue a rubber check.

As a result, those flagged as suspicious through these systems may find that merchants and payment processors begin to turn down their checks. However, after many successive checks faced the same issues, he realizes that ABC may be issuing rubber checks intentionally. In response, Steve hires a business lawyer to advise him on a potential lawsuit against ABC. In the meantime, he suspends business with ABC and requests interest from ABC for its unpaid balances.

What is a rubber check?

One of his regular customers is ABC Retailers, which recently experienced a change of ownership. Since their sale, ABC’s new owners have begun paying their invoices by check instead of electronically. Steve grants his customers 30 days to pay their bills, after which he begins charging interest on the unpaid balance. In some cases, it can be possible for the recipient of a rubber check to levy penalties on the sender.

A rubber check is a check that has been rejected by the bank on which it was drawn. This situation arises when the maker did not have sufficient funds in the underlying account to cover the amount of the check. When this situation occurs, the bank will likely charge a fee to the maker. If the maker has an overdraft protection agreement with its bank, then the bank will lend the shortfall to the maker, so that no checks will bounce. In the United States, it is not a crime to inadvertently write a check that cannot be processed due to insufficient funds or a subsequent stop-payment order. However, these instances can result in fines and penalties, such as the overdraft fees occasionally charged by banks.