After a cheque is deposited to a payee bank or institution, it goes through a clearing process during which it might get dishonored or “bounced”. In response to this, Drawee bank issues a ‘check return memo’ to the payee bank citing the reason for dishonor. There can be many reasons for why this could happen, and knowing these can help avoid the cheque from bouncing in the first place.
Insufficient funds
The most common reason for cheque bounce is insufficient funds available in the drawer’s account. This happens when the current balance in the account of the drawer is less than the value of the cheque.
Stop payment
The next common reason for a cheque bounce is when the drawer directs his bank to stop payment of the particular cheque. The bank shall, at the request of the drawer to not clear the cheque, stop the transaction from happening and the cheque will not clear.
Closed or inactive account
When the account of the drawer of the cheque is closed, the check is destined to be bounced as the account from which the funds are to be debited, does not exist. Moreover, if the account of the drawer is frozen, this too can lead to the dishonor of the cheque.
Mismatching credentials
There can be many errors in filling out the cheque which can lead to the cheque bouncing or getting dishonored, namely
Cheque date
The date column on a cheque is very crucial as cheques are time-bound and only payable up to 90 days and should be paid within it. If the date is indefinite which would be when the date, day, or year are missing or not legible, the cheque would be dishonored. Further, if the date is illegible, appears altered, or wrongly mentioned, the cheque would also get dishonored.
Mismatch of signature
The signature in your bank records should be congruent with the signature on the cheque drawn by you, or else it will be dishonored. With the advent of net banking, it is quite common to see a signature mismatch as people don’t use cheques as often. Moreover, people having disabilities, old age, or just a general error while signing the cheque can lead to the dishonor of the cheque due to a signature mismatch.
A mismatch between the numbers and words in the amount field
While entering the amount payable to the payee, there has to be congruence between the amount written numerically and in words. There can be errors such as using numbers in the words column. (ex- 60 thousand only). Such errors can be grounds for a cheque dishonor.
Overwriting
When there is an evident correction in the form of overwriting by the drawer in the name, amount, etc, or there is ambiguity in the handwriting, the check will get dishonored. Therefore, to avoid the return of such cheque, the drawer should screen for such overwriting and rewrite a fresh cheque.
Damaged cheque
Stained, torn, frayed, or damaged cheques are not accepted by the bank, therefore the physical condition of the cheque is also important to be preserved to avoid dishonor.
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