Saturday, December 17, 2016

20 Cheques Best Practices for issuing and handling cheques

One positive side-effect of Demonetization is increasing cashless transaction, be it by using Debit card, Credit, Card, Mobile Wallets e.g. Paytm, or cheques. If you look at all of them Cheque is probably the oldest way of doing the cashless transaction and after Demonetization it's important has increased more. Even though cheques are there from a long time, I have found people afraid of issuing cheques, partly due to a fear that it can be misused. Someone can change the amount or account number or copy their signature etc.

Well, it's good to be cautious but you alleviate most of your fear by following some cheques related best practices while issuing cheques and while handling cheques. These best practices are mostly the result of common sense but go a long way to secure and safe transaction and reduce the fear of misuse of cheques.

Since most of you have already been issuing cheques, you might know all of these do's and don't's of issuing and handling cheques, I thought it's a good time to revise them on the wake of Demonetization.

Best Practices to follow while Issuing a cheque

Let's see some of best practices you can follow while issuing or writing a cheque. These are simple points based upon common sense but goes a long way in minimizing the risk of unauthorized additions on cheques and their misuse.

1. Always fill up the cheque yourself
Don't give a blank cheque to anyone, not even to your close relatives, friends and family members. Most of the cases of cheque misuse are because of issuing a blank cheque i.e. cheque where you have signed but not put the amount or payee name.

2 .Write "only" after amount in words and put "/-" after the amount in numbers
This prevents someone from altering the amount by using the space left after you have written e.g. if you issue a cheque for Rs 10000 and forgot to put "/-" then it's easy to put another zero there. Similarly, by putting "only" you signal the end of the amount in words and it cannot be further changed even with the same ink.

3. Don't leave space in front 
Always start with the left most corner of space provided. This prevents someone from adding additional word before the amount e.g. you issue a cheque of 10,000 and left some blank space in the front, then anyone can insert word like "one lakh" and "1" in front of your "ten thousand" and "10,000" making them "one lakh ten thousand only" and "110000/-". So, the bottom line doesn't leave any space in front.

4. Sign only in space provided above the 'name of the account holder' or 'authorized signatory' fields
Don't sign anywhere else, otherwise, it can be used to the new changes someone makes in your cheques e.g. altering the amount, payee name etc.

5. Strike through unused space in the name and amount fields to avoid any unauthorized additions
This is also very important to just strike through remaining spaces to avoid any unauthorized additions, it goes hand and hand with best practices 2 and 3 i.e. putting only and "/-" and leaving no space at left.

6. Cancel the words "or bearer" and write "A/c payee" on the top-left corner to avoid cheque misuse
Cheques should always be account payee, you should never issue a "bearer" cheque because bearer cheque means who will present in the bank, the money will be given to them. So, if someone stole the cheque then money is there or even if you lost the cheque then someone can present to the bank and take the money. The account payee cheque secures you against accidental loss, or theft of cheque because money will only be transferred into the bank account of the person you authorized, it's no use of any other.

7. Write clearly and legibly and always use permanent ink pens such as a ball pen in blue or black color
Don't use ink which can be erased because that means anybody who has a tool to erase the ink can make unauthorized changes in your cheque. Always use ball pen to minimize this risk.

8. Sign clearly to ensure the cheque is not bounced due to a mismatch in the signature
You surely don't want that your cheque should be bounced so make sure you sign clearly so that it can be easily matched with bank records.

9. Validate the identity of the third party if handing over cheques for any loan or insurance offering
Most of the cheque related misuse happens when you hand over the cheque to someone you don't know well e.g. agents, brokers or someone selling something. These people open bank account and then collect money from cheques to so it's legal and giving you a false assurance that they are not taking money but the company is taking, only to found out later that the account they asked you to put is their own or company itself doesn't exist etc.

10. Do not leave wide blank spaces in fields like payee name, the amount in words and numbers
This increases the risk of unauthorized additions, hence strike through any unused blank spaces in important fields like payee name, the amount in words and numbers. Start with the leftmost possible and strike through wide blank spaces.

11. Do not overwrite, scribble, cancel or rewrite on a cheque
Instead, issue a new cheque because this also increases the misuse of cheque due to unauthorized additions.

12. Keep a record of your issued cheques
All bank checkbooks have some space in front to record when and who you have issued a cheque. This record keeping is very useful because then you know that which cheque is issued to whom and when. Remember, bank keep record of all cheque leaves issued to you and they only make payment if it's a valid cheque leaf issued to you.

Best Practices to follow while Handling a cheque

In the last section, you learned some best practices about issuing cheques, but that is just a job half done if you don't handle cheques correctly it can still be misused. Let's see what you can do to prevent them.

1. Handover a cheque only after correctly filling all details i.e. date, payee name, amount in words and numbers
This is again the same point related to blank cheques but I have seen many people fill all the detail e.g. payee name, the amount in words and numbers and make the cheque account payee but don't put the date on it. This increases the risk of cheque bouncing because you don't know when you issued a cheque and you have to ensure that your account is sufficiently funded. Surely, you don't want the cheque to bounce, so always put a date on it.

2. Report loss of cheque leaves to the bank immediately and request a stop payment.
This is very important, call your bank or go to the bank personally to stop payment on misplaced cheque. If multiple cheques are lost, request stops payment on the entire series. Remember, you can always ask new cheques from banks, most of the bank don't charge for issuing new cheque books. Some of them charge minimal amount which is worth paying then someone misusing your lost cheque.

3. Ensure your account has sufficient funds before you issue a cheque
This is again very important given laws around bounced cheques. You must double check that your account has sufficient funds before you write a cheque and also follow-up with the person if he is delaying in submitting the cheque to the bank.

4. In the event of any alterations/corrections, a new cheque leaf should be used 
This rule helps you to minimize the risk of unauthorized alteration on your signed cheques.

5. Write "Canceled" clearly across the face of the cheque to suitably deface it and make it unusable
This is the correct way to cancel a cheque. Sometimes, you need to submit a cancelled cheque to prove that you have a bank account or for something else. Whenever you have to submit a cancelled cheque e.g. for KYC, always write "Cancelled" across the face of the cheque.

Here is an example of  a Cancelled cheque:

20 Cheques Best Practices for issuing and handling cheques

You can see that "Canceled" is written across the face of the cheque.

6. Do not keep pre-signed blank cheque leaves
Never do this, never pre-sign a cheque. This is actually one of the worst practice of handling cheques. The risk of unauthorized use of cheques increases a lot when you keep pre-signed blank cheques in your home or office.

7. Do not disfigure or damage the MICR band at the bottom of the cheque in any way
Everything is electronic now. Bank do most of their processing electronically hence the MICR code becomes very important. The disfigured or damaged MICR band may result in bounced or rejected cheque.

That's all about some best practices while issuing and handling cheques guys. I am sure, you know many of them already and following them, which is great. In the wake of demonetization, electronic cashless payment will gain more importance but I believe, cheques will also help you a lot as it had helped many families having weddings last month and without much cash. You can still do a big transaction using cheque but you must follow these best practices to minimize the risk of misuse of cheques.

These best practices are not just for Indians, basically, it's for handling or issuing cheques across the world because Cheque is more or less same in every other country and rules are nothing but common sense. So, NRIs can also benefit from these best practices while issuing foreign currency cheques.

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