When you write a cheque, you expect it to be cashed without any problems. However, sometimes a cheque may be returned to the bank, which can be a frustrating experience. In this article, we’ll explore what happens if a cheque is returned to the bank, why it may happen, and what you can do to avoid it.
What is a Returned cheque?
A returned cheque is a cheque that has been sent back to the bank by the recipient because it cannot be processed. This may be due to a variety of reasons, such as insufficient funds, a closed account, a mismatched signature, or other issues that prevent the bank from cashing the cheque. When a cheque is returned, the funds are not transferred to the recipient, and the cheque writer may face consequences such as overdraft fees or legal action.
Reasons Why a Cheque May be Returned
A cheque could be returned to the bank for a number of reasons. Among the most popular explanations are:
- Insufficient Funds: This is the most common reason why a cheque may be returned. When the chequewriter’s account does not have enough money to cover the amount of the cheque, the bank will return it.
- Closed Account: If the cheque writer’s account has been closed, the bank cannot process the cheque and will return it.
- Mismatched Signature: If the signature on the cheque does not match the signature on the account, the bank may return the cheque.
- Post-Dated cheque: If the cheque is post-dated, meaning it is dated for a future date, the bank may not be able to cash it until that date has passed. The bank may return the cheque if the recipient tries to cash it before the post-dated date.
- Stop Payment: If the cheque writer has requested a stop payment on the cheque, the bank will not cash it and will return it to the recipient.
Consequences of a Returned Cheque
When a cheque is returned, it can have several consequences for both the cheque writer and the recipient. The following are a few of the most frequent outcomes:
- Overdraft Fees: If the cheque writer’s account does not have enough funds to cover the amount of the cheque, they may face overdraft fees.
- Late Fees: If the cheque was meant to pay a bill or other payment, the recipient may charge late fees for the payment being delayed.
- Legal Action: If the cheque was for a significant amount or was intended to pay a debt, the recipient may pursue legal action to recover the funds.
- Negative Impact on Credit Score: If the cheque writer does not resolve the issue of the returned cheque, it may hurt their credit score.
How to Avoid Returned Cheques
To avoid the consequences of a returned cheque, it is important to take steps to ensure that your cheques are processed successfully. Some tips to avoid returned cheques include:
- Keep Good Records: Make sure you keep accurate records of your account balance and expenses to ensure you have enough funds to cover any cheques you write.
Communicate with Your Bank: If you are unsure about your account balance or have any concerns about a cheque you have written, contact your bank to confirm before the cheque is cashed.
- Use Online Banking: Many banks offer online banking services that allow you to check your account balance and transaction history at any time. This can help you keep track of your funds and avoid writing cheques that may be returned.
- Use Electronic Payment Methods: Electronic payment methods such as online bill pay or direct deposit can help you avoid the risk of a cheque being returned due to insufficient funds or a closed account.
- Double-cheque Your Information: Before writing a cheque, make sure you have the correct recipient information, the right amount, and a clear signature. A simple mistake can cause the cheque to be returned.
How to Handle a Returned Cheque
If a cheque is returned to your bank, taking action as soon as possible is important. Some steps you can take include:
- Contact Your Bank: Contact your bank to find out why the cheque was returned and what steps you can take to resolve the issue.
- Reissue the cheque: If the cheque was returned due to a mistake or error, you can reissue the cheque with the correct information.
- Make Payment Another Way: If you cannot reissue the cheque, consider making payment another way such as using online bill pay or a wire transfer.
- Address Any Overdraft Fees: If your account has been overdrawn due to the returned cheque, address any overdraft fees as soon as possible to avoid further consequences.
Legal Action for Returned Cheques
If a cheque is returned due to insufficient funds or a closed account, the recipient may pursue legal action to recover the funds. In some states, writing a bad cheque can be considered a criminal offense, and the cheque writer may face fines, community service, or even jail time. It’s important to take any returned cheques seriously and address the issue promptly to avoid legal consequences.
The Importance of Keeping Good Records
Keeping good records of your account balance, expenses, and cheque transactions can help you avoid the risk of a cheque being returned. By regularly monitoring your account and keeping track of your payments, you can ensure that you have enough funds to cover any cheques you write. Good record-keeping can also help you quickly identify and resolve any issues with returned cheques.
In conclusion, a returned cheque can be a frustrating experience for both the cheque writer and the recipient. By understanding the reasons why a cheque may be returned, taking steps to avoid returned cheques, and addressing any issues promptly, you can minimize the risk of a returned cheque and avoid the consequences that come with it.
Can a cheque be returned even if there are enough funds in the account?
Yes, a cheque can be returned for reasons other than insufficient funds, such as a mismatched signature or a closed account.
How long does it take for a returned cheque to be processed?
The processing time for a returned cheque may vary depending on the bank and the reason for the return.
Can a cheque be re-deposited after it has been returned?
It depends on the reason for the return. If the cheque was returned due to insufficient funds, it may be possible to re-deposit the cheque once the account has been funded.
Will a returned cheque affect my credit score?
A returned cheque may not directly affect your credit score, but if the issue is not resolved and legal action is taken, it may hurt your credit.
Can I be arrested for writing a bad cheque?
In some states, writing a bad cheque can be considered a criminal offense and may result in fines, community service, or jail time.