Not Sufficient Funds

Posted in Finance, Accounting and Economics Terms, Total Reads: 66

Definition: Not Sufficient Funds

Not Sufficient Funds is a situation in which the bank does not honour’s a customer’s check because of insufficient funds in the bank account. The same can also occur when a customer is making an electronic payment using a debit card. When a NSF occurs the payment is generally not processed by the bank and the account holder is charged a fee for a NSF entry.

It may also happen that the bank may have certain overdraft agreement with the account holder and may provide the remaining part of the payment which is not in the customer’s account by charging a very high interest rate even for a small amount. This is called an ‘overdraft fee’ which is exorbitant.

For example if a person has Rs.800 in his/her bank account and the person writes a check or uses debit card to make a payment of Rs.1000 then that situation will lead to an NSF. In such a situation that customer may be allowed to pay because of an overdraft agreement with the bank but that would occur at a very high interest rate. In such a situation the customer can make a payment of Rs.800 or less if there is no overdraft agreement with the bank.

If a supplier who presents his customer’s check gets an NSF statement from the bank then his/her customer may lose credibility and the supplier may not do business with him/her again or may reduce the volume of business. This affects the credibility of the customer which is not good for his/her business.



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