Post Dated Cheque Meaning
Post-dated cheque is a negotiable instrument which is written by the payer for a specific future date before which the drawee cannot produce the same in the bank to get the desired amount and whether the post-dated cheque may be cashed or can get deposited before the mentioned date, it solely depends on the country to country.
A Canadian bank, for example, cannot process a post-dated cheque before the mentioned date and if it does it is treated as an error, and the bank must rectify the transaction. In the US and UK, post-dated cheques can be drawn at any point in time and the date mentioned has no value whereas in India and Australia post-dated cheques cannot be paid till the date written on the cheque has been fulfilled. It simply means that the payer is committed to making the payment but only on a future date. Post-dating makes sense only when the payer is certain that the payee will not encash the cheque or deposit it in the bank before the date appearing on the cheque. The main intention of this cheque remains a deliberate payment delay.
Example of Post Dated Cheque
XYZ Ltd. is a private company dealing in computer accessories manufacturing. The company must purchase different types of components as raw materials to assemble it as the final product. The company is a bit short of cash and will soon be getting paid by its customers as the cash collection begins in a month. On the other hand, the company needs to purchase certain raw materialsRaw MaterialsRaw materials inventory is the cost of products in the inventory of the company which has not been used for finished products and work in progress inventory. Raw material inventory is part of inventory cost which is reported under current assets on the balance sheet.read more from its suppliers to let the production cycle run as usual without any impact. Thus, the company buys raw material from its suppliers for $10,000 and makes the payment in the form of two post-dated cheques of $5,000 each. The date mentioned in the first cheque is one month going forward, and the date in the other is two months from the present date. The supplier agrees to hold the cheque and only present them on the given dates with the commitment from the business that both the cheques will be honoured and will be paid by the bank on the specific dates. Thus, on the date on which the supplier received the cheque, the supplier should not debit cash and credit account receivables. The reason behind this is that post-dated cheques cannot be considered as cash before the date mentioned in the cheque and only on the date which is mentioned in the cheque leaf one can treat it as cash and deposit the same in bank.
How to Write Post Dated Cheque?
A post-dated cheque is a negotiable instrumentNegotiable InstrumentA negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer. It includes bills of exchange, delivery order, promissory note, customer receipt, etc.read more with a future date written on it. So, for example, if today’s date is 19th June 2020 and we want to issue a cheque where we need the payee to receive the amount after a month, we will put the date as 19th July 2020 where the cheque can only be encashed or deposited in the bank on and after 19th July 2020. One should always ensure that one has enough funds to honour the cheque on the specified mentioned date and that the cheque doesn’t bounce. These will again lead to the payment of insufficient fund fees or overdraft fees which will be collected by the bank as penalty from the cheque issuer or the payer. Banks in US and UK will not the check the cheque date unless it has been typically mentioned by the issuer not to release the payment before the mentioned date whereas in India and Australia this is not the same and banks will not encash the cheque unless the date mentioned in the cheque has been fulfilled.
Rules of Post Dated Check
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For eg:
Source: Post Dated Cheque (wallstreetmojo.com)
#1 – No Fraud is Allowed
Though no law makes post-dated cheques illegal. It is illegal to issue a cheque when the payer doesn’t have enough funds to cover the amount mentioned in the cheque.
#2 – Not a Written Agreement
The payee can present the cheque at any point in time unless and until the payer mentions it to the bank that the cheque cannot be encashed before the specified date. This is applicable for countries like US and UK where if required the payee can present the cheque at any point of time and is there is no instruction from the payer to the bank; the bank must honour the cheque which means the bank s free to pay the funds to the payee even before the date mentioned. However, such scenarios are not present in India and Australia where banks are required to encash the cheque only on and after the specified date.
#3 – Confirm with Your Bank
When a future dated cheque is written, it guarantees nothing. One must provide written instruction to the bank, and the bank can tell us exactly how to do it. Different banks have different rules on how long they will continue to track to prevent premature payments which are again dependent based the user pays certain fees for this monitoring.
Laws of Post Dated Cheque
In US national banks can encash cheques before the date mentioned on the cheque leaf. According to US Banking laws, a cheque is a negotiable instrument, and a payee has the right to negotiate it through the banking system at any point in time. Thus, the date mentioned in it bears very little importance unless the payer has provided some written instruction to the bank about not providing the chance of getting the cheque encashed before the mentioned date.
In the UK too post dating a cheque carries no legal weight, and the bank can encash it at ay point of time. In the UK banking laws, a cheque is defined as a bill of exchangeBill Of ExchangeBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services.read more drawn on a banker payable on demand. Under the Bill of Exchange and Banking Act 1882, a bill is not invalid by reason only that it is post-dated or ante-dated.
Benefits
- It acts as a form of instalment payment system where the payer does not have to pay the amount at one go or at the specified time.
- It helps the payer to cover his position for lack of funds by buying some time before he makes future payments.
- It helps in the seamless operation of businessOperation Of BusinessBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more even if the owner lacks funds to make payment to suppliers.
- It acts as a commitment for both the parties that the transaction will surely take place on a future date.
- Only that it is post-dated or ante-dated.
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