Reasons of Cheque Return
What is cheque?
A cheque is a written document which authorizes the withdrawal of funds from a bank account. It must include the name of the payee, the amount to be paid, and the date.
Cheques are commonly used for payment, but their usage has decreased in recent years with the rise of electronic payment methods.
Although cheques are primarily written to a specific payee, it is possible to write a cheque to cash. This allows the recipient to deposit the cheque and withdraw the amount without having to provide identification. This can be a convenient way to transfer money quickly, but it is also more vulnerable to fraud.
What is cheque return?
When a financial institution refuses to honor an issued check, it is referred to as a cheque return. The most common cause of a cheque return is insufficient funds in the account. Other reasons for a cheque return include:
| Reason | Description |
|---|---|
| Drawn on a foreign account | Check is issued from a foreign bank account |
| Disfigured check | Check is damaged, illegible, or contains incorrect information |
| Numeric and written amounts do not match | Numeric or written amounts do not correspond with the amount written on the check |
| Check presented for payment too long after check date | Check was presented for payment too long after the date it was issued |
| Stop payment order issued by the check maker | Check maker has instructed the bank to not honor the check |
| Checking account on which the check was drawn is closed | Account from which the check was drawn is closed |
When a cheque return occurs, the financial institution will return the check to the issuer and charge a fee. In some cases, the issuer may have to contact the recipient of the check and make alternative payment arrangements.
Reasons of cheque return
The most common causes of a financial institution’s refusal to honor an issued check are insufficient funds, foreign account draw, disfiguration, discrepancy between numeric and written amounts, presentation after check date, stop payment order, and closure of the account from which the check was drawn.
Some of the common reasons why a cheque is returned include:
- Insufficient Funds: If the account has insufficient funds to cover the amount of the check, it will be returned.
- Irregular Signature: If the signature on the check does not match the one on record with the bank, the check will be returned.
- Date of Cheque: If the date on the check is too far in the future, the check will be returned.
In addition, post-dated cheques, discrepancies between the amount in words and numbers, damaged cheques, scribbling and overwriting on cheques, and frozen accounts can all cause a check to be dishonored. All of these issues can be avoided by carefully reviewing the information on the check before submitting it for payment.
What are some consequences of having a check returned?
Having a check returned can result in various consequences. One consequence is bank penalties and fees, such as nonsufficient funds (NSF) fees and potential account closure. The recipient of the check may also charge a returned check fee, which can vary depending on the state and may result in suspension of services.
| Bank | Recipient | |
|---|---|---|
| Penalties | NSF Fees | Returned Check Fee |
| Complications | Account Closure | Suspension of Services |
In addition, having a negative record with specialty reporting agencies may make it difficult to open a bank account in the future. Writing a check without sufficient funds may also result in legal penalties, depending on local laws and circumstances. While financial institutions typically don’t report bounced checks to credit bureaus, the payee may report missed or late payments, potentially lowering credit scores.
What should I do if I have a check returned?
If a payment check is invalidated, it is important to take action promptly. The first step is to deposit money to cover the payment and any bank fees.
It is also important to communicate with the payee to inform them of the situation. Negotiating a payment plan may be necessary if one is unable to pay right away.
Bank fees should be addressed and the bank should be asked to waive them.
It is important to be aware that the check owner may face legal consequences and sanctions if the check is returned due to insufficient funds. The check owner may be subject to criminal prosecution and a fine or jail time. In some cases, the check owner may also be subject to civil court proceedings.
It is important to act quickly when a check is returned. The check owner should deposit money to cover any fees and communicate with the payee. Negotiating a payment plan if necessary and addressing any bank fees may help to avoid further consequences.
Taking the appropriate steps will help to prevent further complications.
What should I do if I receive a bad check?
Receiving a bad check can be a frustrating and costly experience. The first step should be to contact the check writer and ask them to pay the money. If necessary, a letter demanding payment may be sent.
If the check has not cleared, it may be possible to try depositing the check again or contact the bank to see if funds have been added. If the check still cannot be cashed, it may be necessary to seek legal action, such as taking the check writer to court.
The process for legal action varies by state or local law, and it may be worthwhile to pursue a criminal complaint if applicable. It is important to ensure that all necessary steps are taken to reclaim the funds owed to the check holder.
Tips to avoid bouncing checks
Implementing strategies to prevent checks from bouncing can help avoid costly fees and maintain a healthy financial situation. To this end, it is important to monitor your bank account regularly to keep track of deposits, fees, and transactions. Additionally, it is advised to not post-date checks as banks can deposit them immediately.
| Strategy | Benefits |
|---|---|
| Link your checking account to your savings account | Cover insufficient funds and prevent overdrafts |
| Opt into overdraft protection | Declined transactions and bounced payments can be avoided |
| Keep extra money in your account | Acts as a cushion to prevent overdrafts |
Considering these strategies can help ensure that checks will not bounce and can help keep your finances in order. It is essential to be aware of banking regulations and to take the necessary steps to avoid any mistakes that could lead to returned checks. Taking precautions and taking advantage of the different options available can help maintain a healthy financial situation.
Conclusion
Cheques are a form of payment that allows individuals and businesses to easily transfer funds.
A cheque may be returned for a variety of reasons, such as insufficient funds, incorrect banking details, or when the signatory of the cheque is unable to be verified.
The consequences of a cheque being returned can be serious, ranging from late payment fees to long-term damage to a person’s credit rating.
To avoid having a cheque returned, it is important to ensure there are sufficient funds in the account to cover the cheque, double-check all banking details, and verify the signatory’s identity.
If a cheque is returned, the individual should contact the issuer to investigate the cause and ensure that the cheque is redeposited.