What To Do When a Cheque Bounces in Canada: The Hidden Fees and How to Recover Quickly

Cheques may feel outdated but they are still used widely across Canada. They are a common payment type for rent, services, and one-off purchases. That’s what makes them risky, though. Unlike instant payments, cheques clear slowly, meaning a small timing mistake or miscalculation can cause the cheque to be returned unpaid.

According to the Government of Canada, a dishonoured cheque is what happens when the cheque you wrote does not go through. Many Canadians refer to this as a “bounced cheque”. It can happen because your account is short on funds, the signature doesn’t match, or because the written amount shows a difference between the words and the numbers. Regardless of the reason, a bounced cheque comes with associated costs and fees, all of which can add up quickly.

What Happens When a Cheque Bounces

When you deposit a cheque in Canada, the money may appear in your account quickly. However, this doesn’t mean the cheque has fully cleared, though. Canada’s system relies on delayed settlement, which means the biggest banks in Canada have time to verify the funds, the authorization, and payment details. During this period, the cheque can still get reversed even if it’s already showing in your account.

RBC’s Cheque Hold Policy explains this clearly, stating that “if a cheque you deposit is returned to RBC for any reason, either during or after the expiry of the applicable hold period, RBC has the right to charge the amount of the cheque/item to your account.” Most major Canadian banks have similar policies as it helps protect both the bank and the customer.

If you write a cheque to someone else, you need to have enough money in your account to cover the transaction. If you don’t, the bank will not process it. Instead, they will return the cheque, saying there are non-sufficient funds (NSF). There are also NSF fees that may apply in this case, so you will also need to deal with repairing the payment as well as covering extra expenses.  

The True Costs of a Bounced Cheque in Canada

With a bounced cheque, there are often multiple fees that can apply at the same time. In Canada, the main costs include:

• Non-sufficient funds (NSF) fees charged by your own bank when you write a cheque without enough money to cover it.
• Returned cheque fees charged by the recipient. The person or business you paid may charge their own returned cheque or administrative fee. These are separate from your bank’s NSF charges. For specific details, check your lease or service agreement.
• Late payment consequences are a secondary cost, but they are a considerable one. A bounced cheque can also trigger late rent fees, service interruptions, or interest charges. These fees can add up over time.
• Potential impact on your banking relationship. Ultimately, bounced cheques can lead to restrictions on cheque-writing privileges and denied overdraft protection.
• Time and administration. Beyond the money, a bounced cheque involves the hassle of dealing with your bank and reissuing the payment. It can also include repairing the relationship with your landlord or service provider.

Now that you understand the potential costs, the next step is knowing what to do if a cheque bounces.

What to Do After a Cheque Bounces

Once a cheque is returned unpaid, speed matters. Acting quickly can reduce fees and limit damage to your banking relationship.

If You Wrote the Cheque

Did you authorize the cheque? If so, take the following precautions as soon as you can:

• Reach out to your bank to find out the reason for the return. Was it due to non-sufficient funds (NSF)? Or was it a signature issue? What about another technical problem? Once you understand why your cheque bounced, you can prevent it from happening again.
• Move additional funds into your account to cover the cheque amount, being sure to include a buffer. This can help reduce further NSF fees.
• Contact the recipient promptly to let them know what happened and arrange to replace the payment using a faster method if possible. If the recipient will accept it, use an e-Transfer, bill payment, or certified cheque instead.
• Consider reaching out to your bank and asking for a reversal of the NSF fee. If this is a first occurrence, your bank may agree as a courtesy.

If You Received the Cheque

When you are the one who received the cheque that later bounced, you can take the following steps:

• Avoid trying to redeposit the cheque as it will not be accepted by the bank. If you get a returned cheque, you can try again with a new replacement one.
• Notify the writer of the cheque to request a replacement payment.
• If you are charging a fee for a returned cheque or a late fee, communicate this with the recipient upfront. Ideally, in writing.
• Keep records of the transaction including the cheque, deposit receipts, bank notices, and any other communication. This will help should you need to escalate the issue.

How to Avoid Bounced Cheques

Before You Write a Cheque

• Examine your bank account, looking for the “available balance.” This will tell you how much you can use after accounting for pending transactions, bill payments, and holds.
• Keep a small buffer of cash in your chequing account.
• Watch payment timing closely, search for rent and loan payments as well as any automatic withdrawals.
• Consider enabling low-balance alerts through your mobile banking app so you can act quickly if your account balance runs low.
• Avoid relying on post-dated cheques where possible.
• Use alternative methods for critical payments. Instead of writing a cheque, consider using an e-Transfer or online bill payment.

If Your Cheque Already Bounced

• Act immediately. Same day solutions prevent additional fees.
• Contact the other party first to explain what happened and resolve the issue promptly.
• Replace the payment, ideally using a faster method.
• Confirm all fees upfront so you don’t receive any surprises on your next statement.
• Call your bank to request a one-time fee reversal, if possible.

If You Receive a Cheque

• Wait for the cheque to clear before relying on the funds, as deposited cheques can still get returned several days later.
• Request a replacement payment if you get a returned cheque. Avoid repeated redeposits by asking for a new method of payment.
• Communicate quickly and professionally to reduce delays and misunderstandings.

Takeaway

A bounced cheque is not uncommon. And, unfortunately, it has real repercussions. While initial NSF fees get the most attention, the true cost includes delays, added penalties, extra interest, and the stress of having to fix the payment after the fact. Acting quickly can help to limit the damage. But in the end, prevention matters even more.

In the long run, the simplest way to avoid these issues is to reduce your reliance on cheques altogether. Look into automating recurring payments, gather more information on how overdraft protection works, and keep a small buffer in your account to help smooth out cash-flow. Finally, if NSF issues start to become frequent, it’s a sign to take a deeper look at your financial habits in general.