With the increased use of debit cards and chip and pin technology, the cheque is now becoming used less and less by individuals. However, the cheque still remains a popular method of payment by businesses and will be so for the foreseeable future.
Cheques are written orders from account holders instructing their banks to pay specified sums of money to named beneficiaries. They are not legal tender but are legal documents and their use is governed by several Acts of Parliament.
If, once it has been presented, a cheque is not honoured, the person who wrote the cheque can only defend a claim for payment usually on the following grounds:-
Anyone who dishonours a cheque for over £750 (ie where there are insufficient funds in the account and the cheque is marked “refer to drawer”) then that person leaves themselves open to the possibility of the creditor (ie the person to whom the cheque was made payable) presenting a bankruptcy petition (if against an individual) or a winding up petition (if against a company).
The law relating to dishonoured cheques also applies to dishonoured direct debits.
It is now common practice to have a cheque supported by a cheque guarantee card. This means that, whatever happens, a person’s bank will honour the cheque up to the value of the cheque guarantee card (typically around £250). However, there are a number of conditions which must be complied with. For example, the details of the card (number, expiry date, etc) must be written on the back of the cheque.
If a person ever receives a cheque which is then dishonoured, they should provide the cheque provider with a Notice of Dishonour, preferably on the same day. The cheque provider should then be given at least seven days to pay before Court proceedings can be brought.
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