When cheques bounce it doesn't always mean that someone has acted in bad faith. Instead, a bounced cheque may be caused by the vagaries of the cheque clearing system.
How Cheque Clearing Works
Cheque clearing works like this. A cheque is paid into a bank account. That bank contacts the issuing bank to ask them to honour the cheque. If the bank says there are enough funds to cover the cheque, the cheque clears. It there are insufficient funds, the cheque bounces. This is all done by computer.
Consider this example. Mr Smith writes a cheque to Miss Jones, who pays it into her bank account immediately. Ms Jones assumes that the money is now in her account and writes a cheque to pay her utility bill. Unknown to Ms Jones, Mr Smith does not have enough money in his account to cover the amount of the cheque he has written. When Ms Jones' bank tries to get the money from Mr Smith's bank the cheque is refused. Mr Smith's cheque bounces and so does Ms Jones'.
Cheques can take several working days to clear. The clearing period can be anywhere between three and seven working days. Factors that affect cheque clearing include:
1. The day of the week on which the cheque is paid in. A cheque paid in on a traditional non-banking day, such as a Saturday may take longer to clear than a cheque that is paid in on a weekday. 2. The bank that the cheque is paid into. Cheques usually clear quickest when they are drawn on the same bank they are being paid into. Some building societies also take longer to clear cheques 3. Whether the cheques are in the same currency.
Clearing Foreign Currency Cheques
Cheques that are drawn on a foreign bank may take even longer to clear. Some banks will treat a cheque in, for example, US dollars, like a regular cheque. They will assume the cheque will clear and will credit the right amount to your bank account, less any foreign transaction fees.
Other banks are more wary and will wait for the whole clearing process to complete before crediting your bank account. This could take up to six weeks as cheques effectively have to clear two banking systems.
Avoiding Charges For Bounced Cheques
The best way to avoid bouncing a cheque is to be aware of what is happening in your bank account. Check account balances and be aware of the dates on which standing orders and direct debits are going out. If there are payments waiting to go out, you may have less money available than you think. When in doubt, check bank statements or ring or email your bank for an update.
I have a client who at this time of year has financial problems. There is nothing new in that, if the truth be told, the majority of us are all slightly short at this time of year. Christmas after all is the one time of the year where the majority of us are driven to heights of financial excess that very few of us can afford and the more than a few of us find difficult to get out of.
Enter stage left, the Finance Houses and Banks, offering us deals left right and centre to help us smooth our way out of debt into even more debt (if the truth and the small print be known).
My particular client had problems with his mortgage and had been trying to get some sense out of the client services dept of his Mortgage Company when he reviewed his own monthly bank statement. His Mortgage payment had defaulted this month and he had spoken to his Mortgage Company and explained that he would be forwarding this months instalment by way of cheque once the transfer of some other funds had been completed.
This was accepted and everything seemed fine until a few days later he received several letters reminding that the Finance House would be attempting to collect his mortgage payment ten days later. Could he also make sure that there were sufficient funds in his account to facilitate this (despite having been told several days previous to this of his proposed methods for clearing his arrears and having accepted these proposals) as if there were not he would incur late payment charges and also charges from his own bank as well.
So at the end of the day when this attempt at collection had failed my client was now left with double the set of his own bank charges being debited to his account but also a double set of charges being levied by his Mortgage Company. There is something rather sick and perverted in a Society and Industry that makes the majority of its profits from those who are least able to afford them. My client had very little in the way of funds at the outset of the incident and through no fault of his own he has even less available to his disposal now!
The moral of the story? Read carefully, the fine print of any agreement before you sign it (usually hidden deep in pages eleven or thirteen of most documents in the smallest font size that the printers can get away with) and if you feel that you will have problems meeting any of your payments you are obligated to meet, get in touch with your creditors as soon as possible and make sure that you have crystal clear agreements (preferably confirmed in writing) as to how you propose to deal with any rescheduling of any of your debts.
This will help you avoid the debt spiralling occurring that some find difficult to avoid and making an already difficult situation worse.
Stephen Morgan has sinced written about articles on various topics from Blood Pressure, Video and Blood Pressure. Stephen Morgan is an Editor at and also an. Stephen Morgan's top article generates over 27100 views. to your Favourites.