Reasons for dishonouring cheques. - SS2 Commerce Lesson Note

Dishonoring a cheque means that the bank refuses to honor or accept the cheque for payment. There are several reasons why a cheque may be dishonored, and they include:

·         Insufficient Funds: This is one of the most common reasons for dishonoring a cheque. If the issuer of the cheque does not have enough money in their bank account to cover the amount written on the cheque, the bank will not be able to honor the payment.

·         Account Closure: If the bank account of the cheque issuer has been closed or is no longer active, the cheque will be dishonored because there is no account to draw funds from.

·         Mismatched Signature: If the signature on the cheque does not match the signature the bank has on record for the account holder, the cheque may be considered suspicious or fraudulent, and the bank may dishonor it.

·         Post-Dated Cheque: If a recipient tries to deposit or cash a post-dated cheque before the specified future date written on the cheque, the bank will dishonor it as it should not be processed until the designated date.

·         Stop Payment Request: The cheque issuer may contact the bank and request a stop payment on a previously issued cheque. In such cases, if the recipient tries to deposit or cash the cheque after the stop payment request is in effect, the bank will dishonor the cheque.

·         Overwriting or Alterations: If the details on the cheque, such as the amount or payee, are altered or overwritten without proper authorization, the bank may consider it suspicious and dishonor the cheque.

·         Frozen Account: If the bank account of the cheque issuer has been frozen due to legal reasons, bankruptcy, or other issues, the bank will dishonor any cheques drawn on that account.