A cheque is an important document used in the financial system across the globe. It is considered the safest way of transferring money from one account to another account. But sometimes we hear saying the cheque is bounced. what is this cheque bounce?
why it is bounced?
Points to keep in mind to avoid these things. we will know the answer to all these questions in this article. so let’s start…
Cheque Bounce Definition
Cheque Bounce is basically a banking term in which the cheque can not be processed or cleared due to Non-sufficient funds in the cheque writer account.
Bank dishonor returns or Bounce these cheques, also known as rubber cheques. Also, the bank charges NSF (Non-sufficient funds) charges from the cheque writer.
It can be illegal if the bad cheque has been passed further and it can be considered as a crime depending on the amount and whether this operation involves crossing state lines.
Read Also What is Canceled Cheque
Reason for Cheque Bounce
There can be many reasons for the cheque bounce. there are few examples where cheque writes does payment first time through the cheque and this leads to cheque bounce.
We have covered here some of the major and frequent reasons of cheque bounce.
This is one of the major reasons for cheque bounce. if the account from which the cheque is issued has less funds than the amount written on the cheque there is a high probability of cheque bounce. the bank will dishonor the cheque.
In this scenario the bank will charge a fee from both the cheque writer and depositer. to resolve this the cheque writer has to issue a new cheque.
Sometimes the cheque writer believes that they have funds available in their account but due to some unexpected withdrawal the balance is reduced, hence the deposited cheque will get bounced.
Date Issue on Cheques
The date is an important part of the cheque and it plays a vital role in the successful clearing of any cheque.
The major problem with the date on the cheque is that the number is either discolored or scratched resulting in cheque bounce.
In few cases the cheque issuer or depositor does not check the issue date on the cheque, this also results in the bouncing of the cheque.
In simple words, if the issue date on the cheque is more than 3 months from the present date, the bank can bounce the cheque.
This is also a very common reason for the cheque bounce in India. if your signature on the cheque does not match with the bank records then the issued cheque will be bounced.
Also if the issuer sign on the MICR band present on the cheque bank can dishonor the cheque. In this situation, a new cheque has to be issued.
You have to very careful while handling a cheque. In case if it has spots or strains or marks which make the details not visible clearly, your cheque can be dishonored by the bank.
Overwriting on Cheque
Any correction or overwriting on the cheque can be dishonored by the bank immediately. Make sure you always issue a fresh cheque if some kind of mistake happened while filling the cheque.
Also Read Cheque Clearing Process
What Happens When a Cheque Bounces
It is significant to know that the bank charges is only one scenario in case of cheque bounce. In many cases the Payee or beneficiary also liable for a charge.
For Example, if someone is paying the amount through a cheque for the mobile purchased from the store and if the cheque bounces, the store may reserve the right to redeposit that cheque along with a bounced cheque fee.
Further negative reports with financial institutions can make the customer very difficult to open savings and current accounts in the future. Also, it is possible that the customer might get banned from issuing the cheque in the future.
How to Avoid Bouncing Cheques
There are many steps through which we can avoid bouncing any cheque. here are some of them.
- Always Check your balance before issuing any cheque. this will help you to mention correct amount you need to withdraw via cheque.
- Keep a track of each transaction detail in your account on a regular basis.it will help you to know the exact balance in your account.
- Make sure the cheque is neat & clean.it should be without any marks or spots.
- Always check your signature once before submitting the cheque to the bank. this will reduce the chances of cheque bounce due to signature mismatch issue.
- In case if you did any mistakes while filling a cheque do not overwrite instead issue a fresh cheque.
Impact of Bounced Cheque
A bounced cheque may impact your credit score as negative and further, it can deprive you of applying for a loan. In short, it can hamper your CIBIL score.
As per the guidelines issued by the RBI, the bank can prohibit the issuance of cheque book to any customer who is booked repeatedly for the offense of check bounce.
The maximum chances given to a customer are four times on a check of more than Rs 1 crore. In addition, if you have protected any collateral with the bank for a particular loan and if the repayment EMI cheque bounces, the bank has the right to issue a legal notice or can deduct money from your active account as well.
We have learned the concept and consequences of cheque bounce. Also, we have seen the impact of cheque bounce.
In order to avoid cheque dishonor charges and other issues bank digital. It means instead of issuing a cheque choose to transfer funds online using the internet or mobile banking.
You can transfer funds to the same bank account as well as other bank account using the internet or mobile banking. Also, you do not have to visit a bank branch.