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A cheque is a written document instructing a bank to debit your account and pay someone.
Cheques represent a major chunk of all non-cash payments for each year. Hundreds of millions of paper cheques are issued every year.
While writing a cheque is quite simple, cashing a cheque can sometimes be a nightmare. A report by investopedia.com provides the following as some of the top reasons why a bank won’t honour your cheque:
- You don’t have proper ID
Banks have to protect themselves against cheque fraud. Without proper proof of identity, banks can legally refuse to honour a cheque made in your name.
In some countries, banks are allowed to swipe the magnetic stripe of your electronic driver’s as a requirement to cash a cheque as long as they stay within the legal limitations of what they can do with that information.
Always carry proper government-issued identification such as a driving licence or passport, when you intend to cash a cheque.
- The cheque is made out to a business name
Emeka Collins owns Emeka Collins Landscaping Services Limited. His business is booming, so much so that he has not been able to complete the registration of his limited liability company with the Corporate Affairs Commission.
Collins just finished a large job and received a cheque made out to Emeka Collins Landscaping Services Limited. He tries to cash that cheque at a nearby bank, but the bank teller refuses to complete the transaction unless Collins can provide a proof of valid business registration with the government.
To prevent such a scenario, owners of corporations, non-profit organisations, LLCs and partnerships should register their businesses with the appropriate Federal Government agencies and open their business accounts under the business names.
- The bank branch can’t handle a large transaction without prior notice
Not all banks can handle large transactions without prior notice. Smaller branches of large national bank chains may not have all the necessary cash to clear a very large cheque.
For example, a bank may have on a particular day only N50m available for customer transactions. Even when that bank has the necessary cash to clear N50m cheque, it cannot just give away all of its cash to one customer and ask everybody else to come back another day.
When you have a cheque for a very large amount, call the manager of the bank branch you intend to visit in advance. The bank manager can advise if you need to go to a main branch of that bank chain, suggest another bank that can handle the large transaction or set an appointment for you to visit her bank branch.
- The cheque is too old
Some cheques carry notices indicating that they will become void within 60 days or 90 days. While the Central Bank of Nigeria considers those notices to be guidelines, some banks are very conservative and are not willing to budge.
If you wait too long to cash a cheque and it is over 60 to 90 days old, a bank can refuse to cash it. Legally, a bank can refuse to cash any cheque that is older than six months. Some banks may decide to cash it anyway as a favour to long-time customers, but that is entirely at the discretion of those banks.
Another reason why a bank may not be able to honour a cheque that is too old is that the routing number of the institution issuing the cheque may have changed as a result of merger or acquisition.
- Hold payment request on a post-dated cheque
If you try to cash a post-dated cheque and a bank refuses to honour it, the bank may be following the orders from the person that wrote the cheque.
When you give an advanced written notice to your bank to not honour a post-dated cheque, the request is valid for six months, under the law. An oral notice is only valid for 14 days.
To avoid being liable, banks will follow these requests from their clients very strictly.
Any time that you receive a post-dated cheque, ask the person writing it the initial date, when you can safely cash it.
- The bottom line
Learn the top obstacles to cashing a cheque and take action to prevent a potential cash flow gap. While it may look like a no-brainer to grab a cheque and try to cash it right away, you need to be on the lookout for red flags that tell you that a cheque will be hard to cash.