Here are the Reasons Why Your Cheque Bounced Or Dishonoured. A cheque, or check (American English; see spelling differences), is a document that orders a bank (or credit union) to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account (often called a current, cheque, chequing, checking, or share draft account) where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.
Although forms of cheques have been in use since ancient times and at least since the 9th century, it was during the 20th century that cheques became a highly popular non-cash method for making payments and the usage of cheques peaked. By the second half of the 20th century, as cheque processing became automated, billions of cheques were issued annually; these volumes peaked in or around the early 1990s. Since then cheque usage has fallen, being partly replaced by electronic payment systems. In an increasing number of countries cheques have either become a marginal payment system or have been completely phased out.
Essentials of a Cheque
There are some features of a cheque that everyone should be aware of and have knowledge about before using this payment mode. Here are some of its elements-
- It is an unconditional order.
- It is always drawn on a specific bank.
- It is payable on demand.
- The payment of cheque is made in cash.
- The amount mentioned on the cheque is always a certain sum of one’s account.
- The cash amount specified in the cheque has to be paid to the person whose name is indicated on the cheque.
These were some of the basic aspects of the cheque that are important for you to know if you use this method of payment.
Cheque bounce in anywhere can be considered illegal and a criminal offence. The issuer may be liable to pay penalties. In some cases, legal action taken may be (by the bank) towards the issuer. Although, there are several cheque bounce reasons to be considered such as incorrect date mentioned on the cheque, signature mismatch, mismatch of the amount and figures, damaged cheque, overwriting of the cheque, etc. The principal reason for a cheque bounce is insufficient funds.
First, if your account lacks appropriate funds from which the cheque has been issued, there are high chances that the cheque will bounce.
In the second case of cheque bounce, you receive a cheque from an account which has minimal to no funds. When this happens, the bank will not process the cheque.
Both these are scenarios of a bounced cheque. Nominal penalty to both parties will apply in either of the above situations. Thus, one must maintain sufficient funds in the account to prevent a cheque bounce.
A bounced cheque fee varies from bank to bank, and various penalties plus service tax and cess are charged over and above the fines.
What is a Bounced Cheque?
A dishonoured cheque cannot be redeemed for its value and is worthless; they are also known as an RDI (returned deposit item), or NSF (non-sufficient funds) cheque. Cheques are usually dishonoured because the drawer’s account has been frozen or limited, or because there are insufficient funds in the drawer’s account when the cheque was redeemed. A cheque drawn on an account with insufficient funds is said to have bounced and may be called a rubber cheque. Banks will typically charge customers for issuing a dishonoured cheque, and in some jurisdictions such an act is a criminal action. A drawer may also issue a stop on a cheque, instructing the financial institution not to honour a particular cheque.
In England and Wales, they are typically returned marked “Refer to Drawer”—an instruction to contact the person issuing the cheque for an explanation as to why the cheque was not honoured. This wording was brought in after a bank was successfully sued for libel after returning a cheque with the phrase “Insufficient Funds” after making an error—the court ruled that as there were sufficient funds the statement was demonstrably false and damaging to the reputation of the person issuing the cheque. Despite the use of this revised phrase, successful libel lawsuits brought against banks by individuals remained for similar errors.
In Scotland, a cheque acts as an assignment of the amount of money to the payee. As such, if a cheque is dishonoured in Scotland, what funds are present in the bank account are “attached” and frozen, until either sufficient funds are credited to the account to pay the cheque, the drawer recovers the cheque and hands it into the bank, or the drawer obtains a letter from the payee stating that they have no further interest in the cheque.
A cheque may also be dishonoured because it is stale or not cashed within a “void after date”. Many cheques have an explicit notice printed on the cheque that it is void after some period of days. In the US, banks are not required by the Uniform Commercial Code to honour a stale-dated cheque, which is a cheque presented six months after it is dated
Number of parties involved with a cheque
When you create a cheque, it is usually in the name of a third party that can withdraw it from a specific bank. Hence, there are three parties involved with a cheque. Here is some of the information on them-
- Drawer- He is also called the maker and is the account holder that creates the cheque.
- Drawee- It is the bank of which the cheque is drawn, and thus it is called drawee. As mentioned above, the cheque is always drawn for a specific bank.
- Payee- He/she is the person whose name is mentioned in the cheque for getting the payment. If it is just a transfer, then the drawer and payee can be the same individuals.
These were some of the basics of the cheque that you should know if using this method. Now, let us know about the reasons why your cheque can bounce or dishonour.
Reasons Why Your Cheque Bounced Or Dishonoured
Scribbling and overwriting on Cheque
Date of Cheque
The difference in the amount in words and numbers
When payment is stopped
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