I only know of one escort who got paid with a bill the ATM wouldn't take, he took a careful look and discovered it was counterfeit 20, later on he gave it to a friend who collects coins as one more piece for his collection.
I would contact the client and explained it to him, hopefully he'll understand but I would never take it to the police or a bank because they're likely to ask questions and as we all know lying to them is not a good idea.