A returned cheque is a cheque that the bank does not honour. The cheque will be returned to the bank that submitted the cheque for payment (typically the recipients or payee’s bank). If you are the cheque writer, it means that your bank will not pay the person or business you wrote the cheque to according to www.thebalance.com.
If you received the cheque, a returned cheque is a cheque that you won’t get paid on (at least not right away). Let’s go over the basics of returned cheques and what to do if you have one.
Basics of returned cheques.
Returned cheques are cheques that the cheque writer’s bank denies.
There are several potential causes for returned cheques, including: There is not enough money in the account (insufficient funds); a stop payment was placed on the cheque; the cheque is too old to honour, and the cheque was improperly written.
Returned cheques are more and more likely than ever before: Banks and businesses process cheques electronically, and even consumers can deposit cheques with their mobile phones. What worked in the past (writing a cheque while your account is low on funds) might not work anymore. It is increasingly difficult to float cheques and hope that funds will arrive in your account before your cheque gets deposited. Nowadays, even if you write a cheque on paper, there’s a good chance that the cheque will be converted to an electronic cheque at the cheque-out register and funds will come out of your account quickly.
Have you accepted bad cheques?
If you’ve received returned cheques as a merchant, you may wonder what you can do about people who write bad cheques.
Just ask: For starters, you can still try to collect the money. Try to contact the cheque writer and request that they make good on the payment — it may have been an honest mistake, and they may have every intention of paying you.
This is one reason it’s good to verify that cheques always show a current phone number.
A trip to the branch: You can also visit a branch of the bank the cheque draws on (look for the bank name on the face of the cheque) and try to cash it. The money you need (if it exists) will be at that bank (not your own bank, which will present the cheque a day or two after you deposit it there). When you visit the bank in person, you may also be able to avoid bounced cheque fees for depositing bad cheques at your bank. As you now know, you’re the one who gets dinged (through no fault of your own) when a customer cheque is returned. Of course, you’ve got better things to do with your time, but this may be your best option.
Good timing: If you’re fortunate, you’ll be at the bank shortly after the cheque writer has deposited money. The beginning or end of the month might be a good time to try and collect if the person gets paid with direct deposit. You can also try to save yourself a trip by calling the bank and asking to verify funds on the cheque. However, banks are not always willing to verify funds due to privacy concerns.
Next steps: If the cheque writer will not make good on the returned cheque, you may have to take additional steps. For example, you might file a lawsuit against the cheque writer, and you can send their account to a collections agency (although both of those are probably only cost-effective for large cheques).
Know the law: Each country has different laws on how to handle returned cheques, the penalties, and naira limits. Contact your bank or attorney’s office for instructions on how to deal with any returned cheques you currently have.
How can you avoid dealing with returned cheques going forward? The only sure-fire way is to stop accepting cheques. Since that might put you out of business, the next best thing is to reduce the chances of taking a rubber cheque. A few ideas are below:
Get a cheque verification service that can help you identify customers who have a history of writing bad cheques.
Contact the customer’s bank to verify funds before accepting a cheque and letting the customer leave with merchandise.
Convert cheques to electronic cheques or deposit them immediately with your mobile device (if possible).
Charge a fee to customers to discourage bounced cheques and to compensate you for your time (be sure the fee is disclosed properly at the point of sale and complies with all laws).
Encourage other forms of payment. It can be costly (and risky) to accept card payments. But if you come out ahead, it’s worth it.
Problems with writing bad cheques
If you write cheques that are eventually returned, you’re setting yourself up for trouble. A few of the problems you’ll encounter are:
You’ll end up paying a lot in fees (both to your bank as well as to whoever you wrote the cheque to).
Your bank may close your account, and other banks might reject you as a customer.
You can find yourself in hot water, since writing bad cheques is illegal.
Your credit can eventually suffer, making it difficult for you to borrow money (or get a job or insurance) someday.
You’ll end up in databases used by banks and retailers, making it harder to open accounts and write cheques in the future.