NSF Cheque Recovery in Canada: How Businesses Can Collect on Bounced Cheques
NSF cheques are brutal because they combine two problems at once:
you did not get paid, and
you now have proof the payer may have cash flow issues.
For businesses, this is not just an accounting headache. It is an early warning sign that the account can slide into serious delinquency if you do not act quickly.
This guide covers what Canadian businesses should do when a cheque bounces, how to recover the funds efficiently, and how to reduce the odds of it happening again.
What is an NSF cheque?
NSF stands for “non-sufficient funds.” It happens when the cheque writer does not have enough money in their account to cover the cheque amount, and the payment is returned. Financial institutions typically charge NSF fees when a cheque bounces.
Step-by-step: what to do the day the cheque bounces
1) Stop additional exposure immediately
If the customer has:
ongoing deliveries
recurring service
open projects
Move them to credit hold until you have a resolved payment plan. Do not keep extending credit while the last payment failed.
2) Collect and organize your evidence
You want a clean file:
copy of the cheque (front and back if available)
invoice(s) it was meant to pay
delivery or completion proof
your payment terms
any prior payment history
This becomes your proof package if you need to escalate.
3) Contact the customer promptly and professionally
Start with a neutral approach:
“Your cheque was returned NSF. How would you like to replace it today?”
In B2B, sometimes it is a timing issue, not fraud. Give them a chance to fix it quickly.
4) Require guaranteed funds for replacement
Do not accept another ordinary cheque as your first option.
Request:
eTransfer
EFT
wire
certified cheque
bank draft
This is a trust reset. They have to earn terms again.
5) Send a written demand if not resolved fast
If they do not fix it within a short window, move to a written demand that includes:
cheque number, date, and amount
invoice references
the deadline to pay (example: 7 days)
payment methods accepted
what happens next if unpaid (collections, legal review)
A demand letter is a common pre-court step because it gives the other party a chance to resolve the obligation without litigation.
6) Escalate to a collection agency
If they ignore you, delay, or “promise next week” repeatedly, it is time to escalate.
Vanguard specifically has NSF cheque recovery as a service, which is important because the workflow and urgency for NSF cases is different than ordinary slow pay.
Vanguard also has a no collection, no fee, policy which matters when you are deciding whether to escalate early.
7) Consider legal action where it makes business sense
If the amount is large enough and you have proof, legal action may be an option.
In Alberta, the provincial government notes a creditor can sue in the Civil Division of the Court of Justice (formerly small claims) or the Court of King’s Bench, and that once judgment is granted there are steps a creditor can take to recover funds.
You do not need to jump straight to court, but you should know it exists as a lever if the file warrants it.
Can you add NSF fees or charges?
Be careful here.
In practice, businesses often try to recover bank fees, admin time, or related costs. Whether you can charge an NSF fee depends on what your agreement says and what is legally enforceable in your jurisdiction.
A safe approach:
only charge fees clearly allowed by your written terms
keep fees reasonable and defensible
focus on recovering principal first
If you want to enforce added charges consistently, update your credit terms so customers agree up front.
How to reduce NSF cheques going forward
NSF cheques are often preventable with a few operational adjustments:
Move repeat payers to EFT or eTransfer
Require deposits on first orders or high-risk accounts
Tighten credit limits until trust is rebuilt
Use a credit application and verify bank information
Apply credit holds quickly when warning signs appear
Even small policy changes reduce future write-offs.
FAQ
Should we redeposit the cheque?
Only if the customer confirms funds are available. Otherwise you are wasting time.
Is an NSF cheque fraud?
Not always. It can be a mistake or a cash flow issue. Fraud depends on intent and facts. Treat it as a recovery problem first.
Should we keep doing business with them after an NSF cheque?
Only on tighter terms until they rebuild trust, typically guaranteed funds and smaller limits.
When should we send an NSF account to collections?
If it is not resolved quickly, or you see repeat excuses and delays. Time kills recovery odds.