Bounced cheques are a problem by individuals and businessmen alike. Although nobody wants to get into this kind of trouble, it still happens even to the best of us—whether we’re in the receiving end of it or we happen to unintentionally issue one.
Bounced Cheque in Simple Terms
Bounced cheques are simply cheques that are released and presented to a bank to be encashed but it turns out the amount written on it is larger than the amount that is currently in the issuer’s account. When the bank dishonours the presented cheque because of insufficient funds, it means that the cheque has bounced.
Common Reasons Why Cheques Bounce
There are a number of common reasons why banks may dishonour a cheque. From lack of funds to stay cheques, all are explained below for you to further understand each reason. These may not all be known to most people, but most of the time, banks have these reasons behind their decision to not accept a cheque.
These reasons are listed below:
- Insufficient Funds
This is the most common reason and has therefore taken the first spot. Most people unwittingly sign and issue a cheque with an amount written on it that their account does not currently have. It doesn’t necessarily mean that a person is lying by releasing that kind of cheque. There can be reasons behind this, such as late transfer of salary by the person’s company, automatic payment reduction, or depositing the right amount has been overlooked and forgotten.
- Irregular Signature
There are also cases when banks reject a cheque because the signature on it does not match the specimen signature that they have with them. This is a safety measure to ensure that the original owner of the signature will not be a victim of fraud.
A cheque is considered as a formal and legal document, hence anything that will make it look messy and sloppy should not even be thought of as acceptable. To make sure that everything is legitimate on a cheque, alterations are not allowed to be made on it even if the issuer has signed it himself as a proof of its validity.
- Post-dated Cheque
A post-dated cheque is simply a cheque that’s been encashed before the date that is written on it. It doesn’t matter if it’s made on the day you want to encash it, but if the date written on it is still in the future, it will not be honoured.
- Stale Cheque
This is the opposite of the above. A cheque is rejected when it’s presented to a bank after three months because it’s already a stale cheque.
- Payment is Asked to be Stopped
An issuer of a cheque may have asked his bank before to not acknowledge any cheque under his name because of his own reasons. The bank honours this request and does not accept any cheque issued in his name.
Nobody wants their cheques to bounce or be on the receiving end of it. But understanding will definitely help in future cases. Visit HHS Lawyers & Legal Consultants to know more about financial frauds and legal matters in banking.