A bounced cheque often provokes concern and alarm. However, you should note that simply because your customer's cheque bounces does not necessarily mean that your customer is a bad or doubtful Debtor.
For example it could simply be the case your customer has closed an account with a particular bank/branch and due to an administrative hiatus the cheque drawn on the original bank account fails to clear.
However there are other situations where cheques do fail to clear, examples of which are as follows:-
- Cheque returned "referred to drawer" :
If nothing further is forthcoming it is reasonable to assume that no funds were available in your customer's account to meet the cheque at the time is was presented. Further the customer's bank have assumed it is unlikely there will be sufficient funds to cover the cheque.
Action to be taken: You should immediately contact your customer advising that the cheque has been returned and ask for payment by cash, or bankers draft.
- "Referred to drawer" - "please represent"
In these circumstances at the time the cheque was presented there were insufficient funds in your customer's account to meet the cheque although the bank feel there could be sufficient funds in the future if is represented.
Action to be taken: Contact your customer and advise him of this and ask to ensure that sufficient funds will be in the account when the cheque is represented.
- Post dated cheques:
These will be returned to you following presentation unless the cheque has been post dated by only a few days in which case your customer's bank may retain it until the due date.
Action to be taken: If you have not agreed to accept post dated cheques you should contact your customer asking why this has been sent and, if necessary, ask for a replacement or banker's draft in exchange for which you will return the post dated cheques.
- "No account held" - (or account closed) : self explanatory. You should contact your customer asking why this has occurred and request a replacement from their new bank. What you are trying to assess here is whether your customer is deliberately stalling payment or whether the account change is genuine.
Action to be taken: the cheque should be returned to your customer asking for a replacement.
"Countermanded" or "Stopped":
This may indicate a broken promise by your customer when a cheque has been sent to you following your request for payment. If could also indicate goods or services supplied by you did not conform to contract.
Action to be taken: In either case you should immediately revert to the customer to ascertain why he cheque has been stopped.
- Cheque out of date:
Cheques have a currency for 6 months beyond which period banks are not obliged to honour them.
Action to be taken: the cheque should be returned to your customer asking for a replacement.
- Cheque is unsigned:
It is not unusual for this to be a delaying tactic. Such cheques should be immediately returned to the customer for signature and return.
Action to be taken: You should contact your customer immediately asking for a replacement or banker's draft.
- Words and figures fail to correspond:
Another delaying tactic often employed by the professional Debtor.
Action to be taken: return the cheque for rectification.
- Cheque returned to the effect that a liquidator or receiver has been appointed: In these circumstances sadly it will be too late for you to pursue payment although in the event of goods being supplied you may be able to invoke retention of title should this be applicable.