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Why Cheques Bounce

A bounced cheque occurs when a bank refuses to honour it. This can be due to several reasons, such as insufficient funds in the account, discrepancies in the details, or even a missing signature. The consequences of a dishonoured cheque can be severe in the UAE, potentially leading to legal action. It is crucial to understand the necessary elements to avoid these situations.

Essential Elements for a Valid Cheque

Before you write or accept a cheque in the UAE, there are seven critical factors you need to double-check to ensure the cheque is valid and won’t be rejected by the bank.

1. Date of the Cheque

   Always ensure that the date on the cheque is valid and clearly written. In the UAE, a cheque can only be cashed on or after the specified date, and a cheque with an expired date (older than six months from issuance) is considered stale and will not be honoured. Post-dated cheques are common, but make sure the date is correct, or it will be refused by the bank.

2. Payee’s Name

   Ensure the name of the person or company receiving the cheque (the payee) is spelled correctly. Even minor errors, such as misspelling the name, can result in the bank rejecting the cheque. Use the official name as listed on the payee’s bank account to avoid complications.

3. Amount in Words and Figures

   The cheque amount must be stated both in numbers and words, and both should match exactly. If there is any discrepancy between the two, the cheque will likely be rejected. For instance, writing “AED 5,000” in numbers and “Five thousand Dirhams” in words must align perfectly.

   Tip: Always write the amount clearly, and avoid unnecessary spaces between words and numbers to prevent fraudulent alterations.

4. Signature

   The signature on the cheque must match the signature specimen that the bank has on file for the cheque issuer’s account. Inconsistent or missing signatures will result in the cheque being dishonoured. If the cheque is signed by a company, ensure the authorized signatory signs in accordance with company policy.

5. Sufficient Funds

   One of the most common reasons cheques bounce is insufficient funds in the issuer’s account. Before issuing a cheque, make sure your bank account has enough money to cover the cheque amount. For those receiving cheques, it’s good practice to verify with the issuer that the funds are available.

6. Corrections and Alterations

   Avoid making any corrections or alterations on the cheque. If there’s a mistake, it’s better to void the cheque and write a new one. Banks in the UAE often refuse cheques that have been visibly edited, even if the alterations are initialled. A clean, unaltered cheque will have a better chance of being accepted.

7. Cheque Number and Bank Information

   Ensure that the cheque number is clear and the bank's details are correct. The cheque number is typically printed at the bottom of the cheque and is crucial for tracking and processing. Banks may reject cheques if these numbers are unclear or tampered with.

Best Practices for Writing a Cheque

• Use permanent ink: Always write with a pen that uses permanent ink, such as blue or black ink, to avoid the risk of the cheque being altered.
• Write legibly: Make sure all details are written clearly and legibly to prevent misunderstandings or rejection by the bank.
• Avoid signing blank cheques: Never sign a blank cheque. This can expose you to significant financial risk if it falls into the wrong hands.

What to Check When Receiving a Cheque

As a payee, there are specific steps you can take to protect yourself from receiving a faulty or fraudulent cheque:

1. Inspect the cheque carefully: Check for all the necessary elements—correct date, payee name, amount, and signature—before accepting the cheque.
2. Verify the issuer’s information: Make sure the cheque is issued from a legitimate source. If you’re unsure, you can contact the issuer’s bank to verify the validity of the cheque.
3. Be aware of post-dated cheques: Ensure that the date on the cheque is one on which the issuer's bank will accept the cheque for payment. Post-dated cheques can only be cashed after the specified date.
4. Crossed cheques: If a cheque is crossed (with two diagonal lines on the top left), it cannot be cashed and must be deposited into a bank account. Make sure the cheque format suits your needs.

What Happens if a Cheque Bounces?

In the UAE, bouncing a cheque can result in legal action. While the law has become more lenient in recent years, dishonoured cheques can still lead to criminal penalties, especially for large sums. For smaller amounts, fines may be imposed. It’s crucial to avoid issuing cheques if there is any uncertainty about your ability to meet the payment.

If you are on the receiving end of a bounced cheque, you can file a legal complaint to recover the funds. The issuer may face both civil and criminal consequences.

Conclusion

Cheques continue to play a vital role in financial transactions across the UAE. Whether you are issuing or receiving a cheque, understanding the essential elements of a valid cheque is crucial to avoid the risk of a bounced cheque and the financial and legal troubles that follow.

By following this checklist and exercising caution, you can ensure smooth transactions and avoid unnecessary delays or disputes.

For more information, banks and financial institutions across the UAE offer guidance on cheque-writing practices, so don’t hesitate to reach out to them for assistance if needed.