More than Rs 550 mln worth of cheques returned daily

Colombo’s main cheque clearing house, LankaClear Pvt. Ltd, revealed that about 10,704 (5.6%) of the total number of cheques (190,582) presented daily for clearing are returned unpaid, the Central Bank said last week.

It said in a statement that the total value of such returned cheques in a day was substantial, amounting to about Rs. 552 million.

The volume of cheque returns in Sri Lanka are high by international standards and it has serious implications on the public confidence of cheques as a means of payment.

The bank said that it was thus necessary for the public and the banks to be aware of their basic responsibilities and the precautions each party needs to take in using cheques for day-to-day business transactions.

A cheque can become invalid if it is not presented to the bank within six months (unless the period is specifically stated) from the date of the cheque. If a cheque is refused at the issuer’s bank because there are insufficient funds in the account of the issuer or for any other reasons, the cheque will be dishonoured.

Cheque Returns: A cheque could be returned by a paying bank for a number of reasons which includes insufficient funds in the current account of the issuer.

The main reason for cheque returns is the failure of the issuer to provide sufficient funds in his/her account which accounts for above 52% of the daily cheque returns. Issuing a cheque, knowing that there are no sufficient funds in his/her account, is an offence. Those who issue cheques without adequate funds will have to pay deterrent charges imposed by their banks. The banks as well as businesses will lose confidence in the cheque payment process if cheques are not honoured on time. Similarly the businesses will be reluctant to accept cheques from customers having a history of frequent cheque returns. Therefore, the issuer or the person who writes the cheque has to play a critical role in reducing cheque returns by maintaining sufficient funds in his/her account.

Fraud: Cheque fraud is a behaviour that is deceptive, dishonest, corrupt or unethical, which poses a serious risk to the business community and individuals alike. It could result in a loss of funds from accounts or loss of goods/property. Frauds involving cheques include presenting or issuing lost, stolen or counterfeit cheques (with false signature) to the bank or third party; fraudulently cashing cheques using a false signature;cheque returns because of insufficient funds in the account; and using unauthorised business/company cheque.

Drawing a cheque without funds is an offence punishable under the Penal Code. A consistent high rate of cheque returns would lead to an erosion of public confidence in cheques as a payment instrument with serious implications on the banking system.

Accordingly, it is inevitable that banks would resort to taking action against the offenders by closing down their current accounts.

Precautions by customers

A customer must ensure that he/she holds sufficient funds in his/her current account in the bank to cover the value of the cheque. If he/she does not have sufficient funds, he/she may obtain an advance/overdraft from his/her bank or resort to any other arrangements prior to issuing the cheque.

If the customer makes a mistake at the point of writing a cheque and wishes to alter it, he/she should make sure that he/she crosses out the mistake clearly and places his/her signature near the alteration.

Responsibilities of banks

“Good Faith” on the bank’s part is normally conceded.Banks must follow due diligence in opening new customer current accounts with proper verification with other banks regarding the past behaviour of accounts maintenance.

Banks must educate customers on “crossings”. The bank should take immediate action to close the accounts, which have frequent cheque returns.

The customers who are frequently issuing cheques without sufficient funds in their accounts should be warned and their accounts should be closed subsequently.

Stakeholders of the payment and clearing systems are now exploring possibilities to strengthen legal provisions to take action against those who issue invalid cheques.

They are planning to introduce a reporting system for banks to inform cheque return details of their customers to Credit Information Bureau (CRIB). Banks will be able to use such cheque return details in screening customers at the point of opening current accounts.