Dubai: Whether you are renting a flat, buying a car, or dealing with a business transaction, cheques are still a common payment method in the UAE. But did you know that there are some simple mistakes that can lead to a cheque being dishonoured (or ‘bouncing’)?
Many banks in the UAE have issued detailed advisories on the best practices you should follow when issuing a cheque, and here is a checklist that you should follow.
- Bearer’s cheque: This cheque is payable to anyone in possession of the cheque and is subject to the bank’s approval.
- Crossed cheque: When the issuer draws to parallel lines running across the top left of the cheque, it is referred to as a crossed cheque. This double-line notation signifies that the cheque may only be deposited directly into a bank account. Such cheques cannot be immediately cashed by a bank or by any other financial institution.
- Order Cheque: This cheque is payable only to the payee whose name is mentioned on the cheque.
- Account Payee Cheque: This cheque, too, can only be deposited in the account of the payee. You can write ‘account payee’ or ‘A/C payee only’ on the cheque, indicating that the bank should transfer the funds directly to the specified beneficiary's bank account.
Note: Once a cheque has been signed, it is valid for six months from the due date.
Mistakes you should avoid
Here are some basic rules to follow when writing a cheque, to avoid any unexpected problems:
1. Fill it out right: Never sign a blank cheque unless it is for a financial institution as a security cheque. Always fill in the date, payee name, and amount clearly and in permanent blue or black ink. Leave no room for error by drawing a line through any unused space in the amount and payee sections.
2. Double-check details: Make sure all the information is accurate. Typos and misspellings can cause delays or even rejection.
3. Mind the date: The date you write is crucial. It determines when the payee can deposit or cash the cheque. Most cheques are valid for six months from the due date.
4. No alterations: Use clear handwriting and avoid any alterations, as this can make the cheque void. It is best to destroy the cheque and start fresh.
5. Check your account: Before issuing a cheque, check your account balance. Bounced cheques can result in hefty fines and legal trouble.
6. Use the ‘Account payee’ option for safety: If you want the cheque deposited directly into the recipient's account, mark it as 'Account Payee on the top left corner. To prevent unauthorised encashment of a cheque, cross it.
7. Protect the MICR: The Magnetic Ink Character Recognition (MICR) strip at the bottom is vital for processing. Don't write, pin, staple, or paste anything on it.
8. Use the right pen: Always write your cheque with permanent blue or black ink.
9. Unused cheques: When you cancel a cheque, destroy the MICR band and write ‘CANCEL’ across the face of the cheque. Also, always keep your chequebook.
What makes a cheque valid?
If you have received a cheque, there are certain elements that need to be contained in it, for it to be valid, as per Article 627 of the Federal Decree-Law No. 50 of 2022 on Issuing the Commercial Transactions Law.
If you receive a cheque, make sure it has these essential elements:
- The word ‘cheque’ written clearly.
- An unconditional order to pay a specific amount.
- The name of the bank that must pay (drawee).
- The payee's name (who receives the money).
- The place of payment (usually a bank branch).
- The date the cheque was written.
- The drawer's signature (the person who wrote the cheque).
