Dishonoured cheque

Dishonoured cheque
See also
Credit terms Blocked account Dishonored check Positive pay Credit Application Debit Note Advance funding Acquiring bank Cheque requisition

Dishonoured cheque (also: dishonored check, bounced, returned) is returned by the bank unpaid, as there are no sufficient funds on the account of the issuer. If the issuer had known that the account is empty and issued a check, it is treated as criminal offense.

Reasons for dishonoured cheques

The main reasons are:

• insufficient funds on the account,
• stale cheque - beyond validity period (3 months),
• post dated - presented to the bank before date on cheque,
• ante dated - more than one date that leads to post or stale cheque
• mutilated - incomplete due to damage (some part is missing),
• crossed to many banks - if contains special crossing for more than one bank,
• property not marked - lack of company seal (company cheques only),
• exceeded arrangement - limit of overdraft account is not sufficient.

Interbank Withdrawal Protocol

In countries that have a high level of inflation, and the recovery of due money is difficult, we can find people who are indebted in one or many banks. They place their deposits in accounts at alternative banks than they carry out financial transactions by the last bank. The number of false checks increases as well as the number of people who act in this way. By this large amount neither the bank nor the applicant are able to get the money. Due to the difficult, long and expensive costs of court hearings, those in need do not receive adequate legal assistance. Interbank Withdrawal Protocol is a solution to the trouble with checks. His creator is Rastin Banking2F3. Using the information and communication technology, they collect claims from various banks that were unavailable to the requesting person. (B. Bidabad, M. Allahyarifard 2013,1)

Database for check risk decisions

Some banks that have contact with the first deposit offer customers data verification. This is done on two types of checks. Those delivered and rejected. This data is used for a static model that calculates the probability that a given check will be rejected. The downloaded information fills in the database of verification accounts. Then they are used to decide if the check should be blocked, what is the level of acceptance risk.(S. M. Diaz, J. Swartz 2013,3)

Debt Recovery Act

The established procedure for recovering money from fake checks is determined by the Debt Recovery Act. A person who deliberately writes an unpaid check may be sued to obtain the promised money. The recipient does not have to be a loan company. The fifth part of the Act calls for criminal liability, those who issue a check which will not be accepted by the bank. Thanks to this, private individuals who received an unpaid check could also file a complaint.(I. Rathnapala 2015,3)

Costs Of Breaking Our Financial Commitments

Checks require a balanced account from the owner. If it turns out that the account does not have the right amount of money, the person issuing the check is charged with an additional financial penalty for returning the check. If someone wants to avoid the penalty for a refunded check, he can contact the recipient, in order to request a delay in the time of payment by check. The time of delay may not exceed more than three months. During this time, he must collect appropriate funds to pay off the debt.(Financial Consultant 2018,1)

The process of removing checks

For paper documents we can include a check. This is an order for sending money between banks. People who are used to using checks according to British statistics will live for another ten years. However, checks can be withdrawn by that time. Banks in the United Kingdom are launching an initiative to implement electronic check replacements. They would be much cheaper and less susceptible to attempts by cheaters. Checks are designed to help exchange money with other people in a way that digital technologies do not.(J. Vines,P...,... P. Olivier 2012,1)

Examples of Dishonoured cheque

• A dishonoured cheque may occur when the drawer of the cheque has insufficient funds in their account to cover the amount of the cheque.
• A dishonoured cheque may occur when the drawer of the cheque has closed their account with the bank before the cheque is presented for payment.
• A dishonoured cheque may occur when the cheque has been incorrectly filled out or is otherwise not accepted by the bank.
• A dishonoured cheque may occur when the cheque is post-dated or stale-dated.
• A dishonoured cheque may occur if the drawer of the cheque has placed a stop payment or a revocation on the cheque.

Limitations of Dishonoured cheque

A dishonoured cheque has several limitations that should be taken into account:

• Firstly, it is not a valid method of payment, as it will be returned to the payee unpaid.
• Secondly, the issuer of the dishonoured cheque may be held liable for the bounced cheque, depending on the state's or country's laws.
• Thirdly, the issuer of the dishonoured cheque may be charged a fee by the bank for the returned check.
• Fourthly, the dishonoured cheque may damage the issuer's credit rating and reputation, as banks may report the incident to credit bureaus.
• Lastly, the issuer may also face legal action from the payee for not honoring the obligation of payment.

Other approaches related to Dishonoured cheque

Dishonoured cheque can be solved in several ways.

• The first approach is to contact the issuer of the cheque and ask for a replacement cheque. The issuer should be advised to confirm the availability of funds in the account and to ensure that the new cheque is not dishonoured for the same reason.
• The second approach is to contact the bank and request them to debit the amount from the issuer’s account. The bank may also agree to waive the processing fees in certain cases.
• The third approach is to approach the court and file a claim against the issuer. The court may then order the issuer to compensate the payee for the amount of the cheque and any associated costs.

In conclusion, while issuing a dishonoured cheque can be an inconvenience, there are various ways to resolve the issue, including contacting the issuer and the bank, or filing a claim in court.

References

• Blum, P. (2014). Connectives, prenectives and dishonoured cheques of metaphysical explanation. In Mind, Values, and Metaphysics (pp. 241-251). Springer, Cham.
• Bidabad, Allahyarifard. (2013). Interbank Withdrawal Protocol (IWP) Complementary System of Rastin Banking. States Patent Weinflash, p. 1.
• Diaz, Swartz. (2013). Database forcheck risk decisions populated with check activity data from banks of first depost. Independent, p. 3.
• Rathnapala.(2015).Law and Practice Relating to Money Recovery Actions in Sri Lanka. Independent, p. 3.
• Financial Consultant.(2018). Costs of breaking your financial commitments. Moneyconstrol, p.1
• Vines, Olivier. (2012). The Joy of Cheques: Trust, Paper and Eighty Somethings. Proceedings of CSCW 2012, ACM Press: New York, p.1

Author: Aneta Suder