Bounced Cheque: Definition, What Happens Next, Fees & Penalties

Bounced Cheque: A bounced cheque is a cheque that cannot be granted due to insufficient funds in the payer’s account. It is also known as a Rubber Cheque or dishonoured Cheque. This condition generally occurs when the person who wrote this Cheque does not have the sufficient amount marked on the Cheque. Let us read the article to gain more insights on bounced Cheques.

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What is a Bounced Cheque?

Bounced Cheques are a negative financial consequence faced by the payer when the amount specified by them is not available in their issuing bank. There are many reasons a Cheque gets bounced. However, it creates a very bad impression on the payee’s financial records, and they may also face severe penalties.

What is a Cheque and its Composition?

A Cheque is a written document that instructs the bank to pay a specific amount of money to the person receiving the payment. Cheques are used as a secure and convenient method of transferring a specific sum of money to a recipient. Cheques can be tracked, and transaction records are properly presented. Being a physical method of transfer, it is safer than other electronic transfer methods. Some of the key elements of bounced Cheques are:

Drawer: The person who initiates the Cheque and gives their signature.
Payee: They are the individuals or organizations to whom the payment is directed.
Amount: This is the amount of value to be transferred to the person receiving the payment.
Date: The date when the Cheque was written is mentioned on the cheque. A bank will accept the payment only when the dates and signatures are properly mentioned.
Signature: The drawer must provide their signature, which will help to validate their consent for the transaction.

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Bounced Cheque: Effects of Bounced Cheque

Bounced Cheques can create a lot of trouble for the payers who issued the Cheque. Some server consequences faced by the issuer on the bounced Cheque are mentioned below.

Insufficient fund fee: Banks generally charge a penalty charge for insufficient balance in the account. The payer needs to give the amount based on the charge decided by the bank.
Overdraft Fee: Banks can cover the amount specified on the Cheque if the payer does not have sufficient balance in their account. However, the bank will charge an overdraft fee to cover the amount.
Outstanding debt: Apart from the penalties, the person for whom the Cheque was prepared is still unpaid. Hence, they still have an unpaid debt along with the additional fines imposed.
Damage to Credit Score: A bounced Cheque can have a severe impact on your credit score. Apart from the penalties, it can decline your CIBIL score.
Account Block and Loss of Trust: If the candidates continuously repeat breaking the Cheque bounce. Their account can also be blocked on the basis of late payment, and their relationship and trust with their bank can suffer.

Bounced Cheque: Important things to keep in mind

Some major points to remember while writing Cheques are mentioned below.

Ensure the amount you provide on the Cheque is available in your bank account.
Also, make sure the information provided on the Cheque form is correct. Verify it before handing it over to the recipient.
Make sure that you provide only the registered signature present in the bank for proper validation.
Leave no field blank. Make sure to provide your signature and date on the Cheque. Failing can reject your Cheque transfer.
Also, take the signature of the person accepting the amount to validate that the amount has been received.

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Digital Payment: Alternative to Cheques

To avoid the probability of bounced Cheques and penalties, try to make payments online. Nowadays, various reliable payment transfer platforms can easily transfer your amount in seconds. Also, there are no issues with bounced Cheques, as the money gets transferred when it is available in the bank.

Bounced Cheque: What to do when a Cheque is bounced?

Cheque below to know some of the quick actions that can be taken when your Cheque is bounced.

Contact your Bank: First, settle a connection with your bank and explain the situation with complete honesty. Try to stabilise the situation and pay any penalty imposed by the bank, not further escalate the issue.
Make Arrangements: If the amount was bound to any scheduled rental or service, try to make arrangements for money from somebody you trust or other sources. It is essential to prevent your debt from turning into an outstanding debt.
Alternative Methods: If the account is too crowded, try making payments from an alternate source, such as a debit card, digital transfer, etc.
No Panic: Try not to panic and keep yourself stable to understand and deal with the situation properly.
Report any Fraud: If the Cheque bounce was due to any unauthorized activity on your bank, then report it immediately to the issuing bank. If you have not initiated the Cheque, you must inform the bank as soon as possible.

Bounced Cheque: How to avoid Bounced Cheques?

There are certain practices that you can adopt to prevent bounced Cheque circumstances. First, stay familiar with your current bank balance and keep on Chequeing it regularly, especially before writing Cheques. You can also use alternative payment methods to avoid this incident.

However, if you want to pay by Cheque, make sure to provide the correct information on your form. Also, keep a regular Cheque on your issuer bank account. If any unauthorized person has access to your account, then report it to the bank as soon as possible to avoid serious circumstances.

There are many online payment systems that can provide better transfer options with no risk of bounced Cheques. Consumers must use cash, debit cards, or online payment systems such as mobile wallets, Paypal, Paytm, etc.

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Bounced Cheque FAQs

What is a bounced Cheque?

A bounced Cheque is a Cheque that cannot be granted due to insufficient funds in the payer’s account. It is also known as a rubber Cheque or dishonoured Cheque.

What is the most frequent reason for bounced Cheques?

A bounced Cheque mainly happens when there are insufficient amounts in the bank compared to the amount specified on the Cheque. Due to insufficient funds, Cheques are bounced, which can also lead to heavy penalties and account suspension.