UNDERSTANDING CHEQUES

Many of us have a current account which allows us the convenience of writing cheques to pay bills.  It is also common for us to receive cheques which we deposit into our bank accounts.   But just how much we know about the usage of cheques?  In this article, MoneySENSE highlights a few important tips.

I)  Tips When Writing Cheques

• Ensure You Have Sufficient Funds

Before you write a cheque, check that you have sufficient funds in your current account before you issue a cheque. Otherwise, you may incur bank charges if there are insufficient funds in your account when the cheque is presented. 

There are two types of fees imposed by banks when cheques are returned due to insufficient funds: 
1. a handling/ administrative fee that is charged for the return of the cheque, and
2. a charge for incidental overdraft (OD) interest.  This is to cover the bank’s loss in overnight interest. 

You may be wondering why there is an incidental OD interest charge.   When a cheque is drawn on a bank (“payer’s bank”) and deposited at another bank (“payee’s bank”), the payee’s bank will send the cheque for clearing to claim the proceeds of the cheque from the payer’s bank.  The payer’s bank will then pay the proceeds to the payee’s bank and the account of the payer will be debited on the same day.   If the payer’s bank account has insufficient funds, the bank will do a reversal entry (i.e. credit back to the payer's account) on the next business day.   The payer's account thus will show an OD entry, and an overnight incidental OD interest charge will be imposed on the overdrawn balance in the payer’s account.   For example, if the payer issues a cheque for $1,200 when he has only $1,000 in his account, he will be charged overnight OD interest on $200 when the cheque is presented.

Note that the payer’s account will automatically go into an overdraft position due to insufficient funds, regardless of whether he has a pre-arranged OD facility.   Do review the bank’s Terms and Conditions for information on the interest charges if the account goes into an OD position due to insufficient funds.  

• Record Your Cheques

It is prudent to record the details in the cheque register provided in the first few pages of your cheque book. This practice can help you keep track of the total amount you have made out in cheques. The information can also be helpful when you check and reconcile the details in the bank statement for your current account.  

• Cross Your Cheque Where Appropriate

You should cross your cheque if you do not want your cheque to be encashed or if you want your cheque to be non-transferable.  A cheque may be crossed by drawing 2 parallel lines across the top left-hand corner of the cheque.   You should also cancel the word “or bearer” on the cheque, and add the words “Account Payee Only” (or “A/C Payee Only”) if the cheque payment is meant only for the party stated on the cheque.

Do not cross your cheque if you intend to have the cheque encashed by the holder.   Also, do not delete the words “or bearer” on the cheque nor add words such as “Account Payee Only” as this would render the cheque irregular.

• Write Payee’s Name Clearly

Handwriting or font used in printing information on a cheque should be clear and legible. Write the payee’s name such that there is no space for subsequent unauthorized alterations. Any excess space should be struck off, for instance, by drawing a line across the excess space.   For handwritten cheques, use dark permanent ink because the ink will soak into the paper fibre and make any attempt to erase difficult.

• Write Amount Payable Clearly

Write the amount in words such that there is no space for subsequent unauthorized alterations. Any excess space should be struck off by drawing a line across the excess space.  Use the word “only” after the amount in words is written.

The amount in words and amount in figures should agree.  Otherwise, the cheque may be returned and charges may be imposed.

Ensure that the decimal point is clearly seen.  Do not use the backslash symbol (“/”) in place of the decimal point as the backslash symbol could be misread as the digit one (“1”).  For clarity, you should also use the comma as the thousand separator.

• Avoid Writing Postdated Cheques

It is not advisable to write postdated cheques as these cannot be cleared immediately when the payee receives them.   There may also be processing charges when the cheques are returned.

• Check All Details Before Signing

Check that all details are filled in accurately before you sign a cheque.   Never pre-sign cheques.Also avoid using signatures that are simple with few strokes, as these are easily forged.

If there is any alteration made on your cheque, do sign in full against the alternation.   If there is more than one alteration, it is better to issue a new cheque.  This is because too
many alterations can cause confusion and may lead to a wrongful  debit.

• Notify Your Bank Immediately If You Wish To Stop Payment

If you wish to stop payment on any cheque or the entire cheque book (in the event of theft), do notify your bank immediately.  Note that you can stop payment of an issued cheque only if the cheque has not been cleared or encashed and that an administrative fee may be charged by the bank. 

II)  Tips When Depositing Cheques

• Take Note of Time Taken To Clear Cheques

Cheques are cleared Mondays to Fridays.  On Saturdays, there is no crediting or debiting of customer accounts with cheques, GIRO or Interbank funds transfers.  

It is important to be aware of when you can expect your cheque to be cleared, especially if you need the funds urgently over a weekend.    The table below shows when the account would be credited / debited and when funds would be made available for Singapore dollar cheques.  For more details, please call your bank.

         Monday Tuesday (after 2pm)
Saturday and Sunday **  Monday Tuesday (after 2pm)

* The cheque deposit cutoff time is usually 3 pm on Mondays to Wednesdays; and 3.30 pm on Thursdays and Fridays.  Some banks have implemented a uniformed cutoff time of 3.30 pm from Mondays to Fridays.  The additional half hour on Thursdays and Fridays is intended to give customers more time to deposit their cheques so that they can receive their funds on Fridays and Mondays respectively.

** Cheques are accepted on Saturdays and Sundays at banks that offer branch banking facilities on  on these two days or at Quick Cheque Deposit Boxes.  However, the cheques will not be cleared unitl Monday.  On Saturdays, Cash cheques can be en-cashed at the drawer’s bank.  Cheques for deposit into an account may be marked and drawn on, provided both the payee and the drawer are from the same bank (note that a handling fee will be charged for this).

Note:  There is no clearing of cheques on Public Holidays.

• Deposit Cheques Promptly

It is generally advisable to deposit cheques promptly to reduce the risk of physical loss and misappropriation.   Do also note that, unless otherwise stated, cheques are generally valid for six months from the date the cheque was written.

III)  What To Do When A Cheque Is Returned Unpaid

When a cheque that you have deposited into your account is returned unpaid, you will receive an image return document (IRD) instead of the physical cheque. The IRD serves as a notice of dishonour.   It is a legally recognized replacement of the original cheque for re-presentment.  

You should refer to the bottom half of the IRD to determine the reason why the cheque is unpaid as well as whether you can present the IRD.  

If you can present the IRD to the bank for clearing, you should detach the IRD from the Return Cheque Advice and deposit it at any branch of the same bank that you first deposited the cheque. You may also deposit it in that bank's Quick Cheque Deposit box.

If you cannot present the IRD to the bank for clearing, you should exchange the IRD for a new cheque from the drawer.

IV) Check and Reconcile Your Bank Statement

Banks typically send current account bank statements on a monthly basis.    The statements could be sent in hard copies or made available in soft copies via internet banking. It is important to check your bank statement promptly and regularly after receiving it.   If there are any discrepancies, do notify your bank immediately. 

Take note that the terms and conditions for banking accounts usually indicate that the customers should notify banks of any discrepancies within a certain time period, for example seven days or fourteen days.

This information is provided by the Association of Banks in Singapore as part of the MoneySENSE national financial education programme.