The combination of technology in our daily lives has significantly affected the way we handle financial transactions. With the advent of digital transactions, conducting monetary exchanges has become more efficient and convenient for individuals. There is no need to wait or worry for losing physical checks, digital payments offer a much aligned process for completion of transactions. These transactions are much more simpler and faster, now we can make payments and transfer the money with a few clicks. Although, despite convenient digital payments, cheques still continue being a much preferred mode of financial transactions. Cheques are considered a much safer mode of transferring money and making purchases. But with the use of cheque there is a risk of ‘bounce’ or ‘dishonor’. A ‘dishonored cheque’ is a cheque which is rejected by the bank for various purposes and could result in cheque return charges such as fines, penalties and even imprisonment.
What is Bounce cheque?
A written commitment made by the person issuing the cheque to the person receiving the cheque for a sum of money. In a general situation, the bank of the payer transfers the funds from the payer’s bank or the bank of payee refuses to honour this commitment. The reason for declining this can differ. In such, the cheque bounces and is called a ‘bounce cheque’.
Reasons of Cheque Bounce and cheque return charges
A Cheque can be bounced for many reasons. The Common reason is that the the issuer(payer) does not has sufficient balance in their savings account at the time when the cheque was to be encashed for payment. This is called ‘Bounce due to insufficient funds’. Apart from this there could be other reasons for a cheque bounce such as:-
- Mismatched Signature: The signature in the cheque do not match that which are registered with the bank, in that case the cheque will bounce.
- Mismatched Account number: If account number mentioned on the cheque do not match the issuer’s account number the cheque will bounce.
- Damaged/Disfigured Cheques: Incase the cheque is disfigured or damaged the bank can dishonour the cheque.
- Expired cheques: If cheque is presented for payment after the mentioned date on cheque, it will bounce.
- Stop Payment: If the issuer has requests the bank to stop payment on cheque, the cheque will bounce.
Consequences of Cheque Bounce
A cheque bounce can have some serious consequence for the payer. These consequence depend on the reason for cheque bounce.
Legal Consequence:- In case a cheque bounces because there are insufficient funds in the issuer’s account, its a criminal offence under Negotiable Instrument Act, 1881. In an event where a cheque issued against an account with insufficient funds, the pay can face legal issues. The payee who is the recipient of cheque, has option for taking legal action against the payer. Also, they have the discretion to allow the payer to correct the situation by re-issuing the cheque in a specified time, which is generally three months. The payer can also end up in jail for upto two years for issuing such a cheque.
Financial Consequences: Apart from any legal consequence, banks can also impose cheque return charges for cheque bounce. The penalty differs from bank to bank. Banks have different penalty slabs for amounts which a bounce cheque is issued. The penalty is substantial and could add to financial burden of the payer of the cheque.
Reputation Consequences: A bounce cheque could have a negative impact on the reputation of the payer. It can also affect the credibility and trustworthiness in eyes of the payee and other financial institutions.
Credit Score Consequences: Bounce cheques also impact over the payer’s credit score. A poor credit score could make it difficult for payers to obtain loans or credit cards in future.
Avoiding Cheque Bounce and Cheque return charges
For avoiding cheque bounce charges and cheque return charges, its much essential to ensure that there are sufficient funds in the account before writing a cheque. Its also important to check the information on the cheque, such as account number and spelling of the payee, for ensuring that the cheque is honoured by the bank.
A better way to avoid cheque bounce charge is to do transactions digitally. Incase of relying on the traditional methods as cheques, considering utilisation of digital methods for transferring funds. It includes using online banking platforms or mobile banking for directly transferring funds to other accounts. Also, an individual can explore options for making internal transfers within your accounts using digital payments. It gives convenience, security and real time update on the transaction and account balance.
Tips to keep in mind when issuing a cheque
If anyone needs to issue a cheque, here are things to keep in mind:-
- Issue an Account Payee Cheque:- An account payee cheque is that which can be cashed only by the payee. It ensures that the cheque is not misused.
- Make sure that the signature on the cheque matches the one which is registered in bank.
- Before issuing a cheque, ensure that sufficient funds are in account for covering the amount in the cheque.
- Always carefully fill the details on cheque such as the payee’s name and account number for avoiding any sort of error.
Conclusion
While Concluding , it would be better to say that cheques are preferred mode of financial transactions for many. Also much important to keep in minds the risks and consequences of cheque bounces. Its much important for ensuring there is sufficient balance in account. Double checking information on cheque for avoiding penalty or any legal consequences. Its recommended to use digital payment system for avoiding risk of cheque bounce and charges.
In summary cheques continue being a popular mode of financial transaction, but its important of being aware of risks of cheque bounce. By following the tips provided you can reduce the risk of cheque bounce and charges. It is also important to be aware of laws and regulations regarding the cheque in the country and taking all necessary precaution for avoiding penalties. With these precautions an individual could ensure that the financial transactions are secured and safe.
