The “return of cheques” in the context of banking refers to the situation where a deposited cheque cannot be cleared and honored by the drawee bank (the bank on which the cheque is drawn). When a cheque is returned, it means that the funds could not be successfully transferred from the drawer’s account to the payee’s account for various reasons. Let’s delve into the details of the return of cheques:
- Deposit of the Cheque: The payee (recipient) of the cheque deposits it into their bank account or presents it for cashing at their bank.
- Processing the Cheque: The bank of the payee processes the cheque and sends it for clearing through the relevant clearing system. The clearing process involves sending the cheque to the drawee bank for verification and settlement.
- Verification at Drawee Bank: The drawee bank receives the cheque and verifies its authenticity and validity. They check if the drawer’s account has sufficient funds to cover the cheque amount and whether the cheque meets other necessary requirements.
- Reasons for Cheque Return: There are several reasons why a cheque may be returned:
- Insufficient Funds: The most common reason for cheque return is the lack of sufficient funds in the drawer’s account to cover the cheque amount.
- Account Closed: If the drawer’s bank account has been closed or is inactive, the cheque will be returned.
- Irregular Signature: If the signature on the cheque does not match the specimen signature the bank has on record, the cheque may be returned.
- Stale Cheque: A cheque becomes stale after a certain period (usually six months), and it is no longer valid for payment.
- Post-Dated Cheque: If the cheque bears a future date on which it is not yet valid, the bank will return it if presented before that date.
- Payment Stop Request: If the drawer requests a stop payment on the cheque, it will be returned.
- Communication to the Payee: When a cheque is returned, the payee’s bank notifies them of the reason for the return and provides them with a copy of the dishonored cheque.
- Consequences of Cheque Return:
- Non-Payment: The payee will not receive the funds they expected from the cheque, leading to potential financial difficulties or delays in meeting obligations.
- Charges: The payee may be charged by their bank for the cheque return, in addition to any penalty charges imposed by the drawer’s bank.
- Resolution: The payee may need to contact the drawer to resolve the issue and request a new payment method or a replacement cheque.
- Legal Action: In some cases, the payee may pursue legal action if they believe the cheque was dishonored wrongly or due to fraudulent reasons.
To avoid cheque return, both drawers and payees should exercise diligence. Drawers should ensure they have sufficient funds in their accounts before issuing cheques, and payees should be cautious about accepting post-dated or stale cheques. Electronic payment methods can also offer more security and immediacy, reducing the risk of cheque return.