Issuing cheques is a very convenient method of making payments. What it requires is just writing the date, amount of money to be paid, name of the person who is to be paid to and signature. Though it sounds very easy, but there are plenty of cases where cheques are bounced. Just a single mistake can make your cheque being not honoured by the bank and returned unpaid.
If you are one of the those whose cheque has been bounced and are wondering what could be the reason for dishonour of cheque, then we are here to help you find out that reason. Read on to find out 7 reasons why your cheque is dishonoured.
What Is A Cheque?
A cheque (or check) is an order (written document) to a bank to pay stated amount of money from a person’s account (drawer) to the person (payee) in whose name the cheque has been issued. If you have a savings or current account in a bank, then you can issue a cheque in your own name or in favour of others. You can read about different types of cheques here.
Things that are to be written on the cheque include- date, amount of money (in figures and words), name of the person who is to be paid to and signature. Bank then pays the specific amount of money to that person (payee) from drawer’s account.
What Is Dishonour Of A Cheque?
On presenting a cheque, the bank should pay the stated amount from drawer’s account to the payee. If the bank pays the specific amount to the payee, the cheque is honoured. But if the bank refuses to pay the amount mentioned on the cheque to the payee, it is called as dishonour of a cheque.
7 Reasons Why Your Cheque Is Dishonoured
If your cheque has been bounced, then one of the following could possibly be a reason. Also remember these reasons while writing a cheque next time to avoid dishonour of your cheque by bank in future.
1. Insufficient Funds
Salaries sometimes reach late in accounts leaving insufficient funds in your account which may lead to bouncing of cheque. While writing a cheque, make sure that you have sufficient funds in your bank account.
2. Irregular Signature
Bank will not honour a cheque if the signature of the drawer on the cheque don’t match the specimen signature available with the bank.
Alterations on cheques are not allowed. Even if you sign the alteration to verify it, the cheque will not be considered as valid and will not be honoured by the bank.
4. Post-dated Cheque
A post-dated cheque is the one on which the date which is mentioned is yet to come. Post-dated cheques are to be presented to the banks on a future date. For instance, a cheque written on 15th Jan 2016 bearing a date of 30th Jan 2016, is a post-dated cheque. A cheque will be dishonoured if it is presented to the bank before the date mentioned on it.
5. Stale Cheque
If a cheque is presented to the bank for payment after three months from the date mentioned on the cheque it is called stale cheque. After expiry of that period, the cheque will be dishounoured and no payment will be made by banks against that cheque.
6. When Payment Is Stopped
If the drawer asks the bank to stop payment and not to pay for a cheque already issued, in that case, the cheque will not be honoured by the bank.
7. Frozen Account
If government or court has ordered that a person’s account has to be frozen, in such case, the bank will dishonour all the cheques bearing that account number.
What Happens When A Cheque Is Bounced?
After dishonour of cheque, bank offers ‘cheque return memo’ to payee stating why the cheque has been bounced. The cheque can be resubmitted by the payee if he believes that it will be honoured second time. If the cheque is bounced again, then the payee can prosecute the drawer legally.
If a cheque is bounced, then penalty is levied on both drawer and payee by their respective banks. If the dishounoured cheque is against repayment of loan, in such case, the person will additionally have to pay late payment charges.
2. Damage To Credit History
Dishonouring of cheque negatively impacts your credit history. Financial institutions report your payment activities to credit bureaus. If you have good credit score then it means that you can be trusted by lenders. It is a good practice to avoid your cheques from being bounced it will help you build good CBIL score and benefit you at the time of lending money from financial institutions.
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Also Read: 5 Benefits Of Using A Credit Card