Cheques may be declining in use these days, but they remain a preferred method of payment for many people and business, and as such, there is still the possibility that you could receive a cheque as a payment method.
Although many people have bank accounts they can lodge their cheque into, you may have to wait until up to a week before getting your hands on the cash. If you need the money or simply don’t fancy waiting that long, you can always get the cheque cashed.
Similarly, if you don’t have a bank account, your options will be limited as to what you can do with a cheque, and so being able to cash it becomes more of a priority.
Here are few options you can consider:
Take it to a Retailer
Many large retailers offer cheque cashing services. The benefits of going to a large retailer are that they are more likely to have more cash on hand to give you. Those who offer this service will charge you a small fee for cashing a cheque, which is calculated as a percentage of the amount of money you want to cash.
Take it to the Bank which Issued the Cheque.
You do not have to have an account with the issuing bank to have a cheque cashed there. A bank that has issued a cheque that has been made out to you will, in some cases, cash the cheque for you. However, they will charge you a fee or may even see this as a chance to get your business and try and get you to open an account with them.
Take it to a Payday Lender.
There are payday lender stores in most cities nowadays, and they are convenient facilities for cashing cheques in. Payday loans themselves can be an expensive way of borrowing and cashing cheques in these shops and costly. They will charge you for cashing a cheque, which is often a lot higher than a bank or a large retailer.
Get a Prepaid Debit Card
If you don’t have a bank account but need to get a cheque cashed, you can quickly open a prepaid debit card account. These accounts are easy to open as they don’t require you to have a healthy credit history and therefore aren’t subject to stringent credit checks. This can speed the process up and mean you can get the cheque paid into your account much quicker.
Consider Other Options
There are many other options for cashing cheques. You can sign the cheque over to a friend in exchange for the cash upfront. You can also try other financial institutions such as credit unions or building societies that may cash it for you for a small fee.
Some smaller retailers who don’t have dedicated cheque cashing facilities may also cash a cheque on the spot for you but may ask for personal details from you should the cheque be returned or blocked.
Pros and Cons of Using Cheques for Business Banking?
No matter the size, any business generally relies on a steady cash flow to keep things ticking over. That’s why having a reliable and efficient method of payment is essential. While many businesses are embracing electronic payments and online transactions, there is still a sizeable amount of companies who prefer to use cheques for much of their business banking.
Although they are not as prevalent as they once were, cheques are still used extensively by many businesses, suggesting there are still some benefits to their continued use.
However, there are some downsides to using cheques for business banking which need to be considered.
Pros of using cheques for business banking
Simple to Process
Many businesses, particularly that tiny firms or new start-ups, may not have the facilities to process electronic or online payments. Receiving a cheque as payment is easier for them as they can leave the bank’s processing end.
Funds Leave a Bank Account Slower
Most electronic payments are instantaneous, meaning they leave a company’s bank account as soon as payment is made. For smaller firms with cash flow issues, paying by cheque means the funds will go to their bank account slower, and they have some leeway.
Cheques may Widen a Companies Customer Base.
Even if you have the facility for processing electronic payments, by indicating a willingness to accept cheques, you increase the number of potential customers. If you shut off of one particular avenue for compensation, you may be turning business away as many people are still more comfortable paying by cheque.
Cons of Using Cheques for Business Banking
Cheques can be Stopped or Returned.
This is particularly pertinent when selling goods. If a person pays with a cheque and takes the goods, and that cheque later bounces, you will be out of pocket. In addition, you will also be liable for banking charges due to the returned cheque.
Cheques Take Time to Clear into the Bank Account
Many cheques can take up to five days to clear, meaning you will be made to wait before the funds find their way into your bank account. This is hardly ideal if you need the funds to keep your business going.
Cheques are Open to Fraud
Even with the security pitfalls of online banking, cheque fraud still makes up a sizeable chunk of all financial fraud. Writing and signing a cheque is easy for someone to do and can be pretty difficult to trace. Whether it is someone writing fraudulent cheques from your firm or you are receiving fake cheques for payments, funds are tough to recover once they have been obtained in this way.
Should I Still use Cheques for Business Banking?
The answer to this is not straightforward. It all depends on the size of your operation, what payment facilities you have available to you and what method of payment your customers most prefer. You may feel that cheques are outdated, but if they make business sense, then it may be worth holding on to that cheque book for a while longer.
Are Cheques Still a Popular Form of Payment?
Every generation seems to have their environment wake up when they are suddenly made aware of the damage their behaviour was doing to the planet.
First, we had Sting in the rain forest, then the hole in the ozone and, more recently, global warming and climate change has taken centre stage.
Throughout all this, the push to recycle has been strong, and, in many ways, our rapid journey towards a paper-free society has gathered pace.
However, despite that many businesses are operating in a largely cash-free environment and electronic payments have exploded in the last decade, there appears to be a place for the humble cheque still.
How has Cheque used Declined in the Recent Years?
Cheques have been around for longer than we may think, with the first cheque believed to have been written in the 17th century in England.
They, of course, came into their own in the 20th century, though with almost every bank account offering a chequebook and balancing that book became just another household chore.
It would be naive to think that the use of cheques as a form of payment is still universally popular, and it is a payment method that is on the decline.
A 2017 report commissioned by BNP Paribas found that cheque use fell by 13.5% in 2015, which followed a decade-long decline in the use of the paper payment from which has more than halved since the early years the new century.
Why are fewer people using cheques?
It’s not hard to see why the use of cheques as a form of payment has fallen so rapidly. For a start, payment by cheque can take longer to get into your account, and, as a result of this, more and more businesses are reluctant to accept cheques as payment.
The time we were taken for funds to be transferred one major factor in the decline of cheque use but by no means the only one.
Processing cheques can take longer and incur costs and fees for all parties, with extra charges for cheques that bounce, also a factor that needs to be taken into account.
Why are Some Businesses Still Using Cheques for Payment?
There appears to be a sizeable number of businesses still using cheques as a form of payment for several different reasons.
The majority of businesses still using cheques are usually small and medium firms. One of the primary reasons cited that it delays the time the funds will leave their account, allowing them to better plan their finances.
Many SMEs also claim that they continue to use cheques for payment as it is the most usual method and that many payees continue to request as a form of payment.
While cash and electronic payments are the dominant forms of payment for smaller amounts, many individuals and businesses are still prepared to ‘cut a cheque’ to pay larger bills.
Paying by cheque – Have you paid your staff?
Paying by cheque to your employees their wages or salary, whether that be weekly or monthly. The question this raises is that by utilising this payment method, have you contractually fulfilled your agreement to pay someone on a specific date? Extending this further, if you are paying by cheque as you do not have bank details for the employee, have you assumed that they will be able to present it – Have you paid them?
But indeed, cheques are on their way out?
Well, that was the original idea from the UK Government and the Banks, but as there is no current alternative for those without a bank account, the threat of removing this as a payment method has been removed.
What UK Banks have been working on is speeding up processing cheques to enable a secure and faster process.
Cheques – The Fundamentals
What are the fundamentals we need to know about cheques;
- The Bills of Exchange Act 1882 defines a cheque as a written order from an account holder instructing their bank to pay a specified sum of money to one or more named beneficiaries
- Ever since their inception, it has been the case that cheques are not a promise to pay by the bank, but a request to the bank that it produces, out of the funds deposited by the customer, an amount to a third party. This means that the bank will only honour the cheque if the account holder has sufficient funds to meet it, or it can be covered by an agreed overdraft or another line of credit.
- Cheques are not legal tender and never have been. Even today, if you owe someone money, they are not obliged to accept a cheque. Instead, a creditor is entitled to be paid in legal tender and can refuse payment in any other form.
- Most cheques are crossed as ‘A/C Payee’. The Cheques Act 1992 and Section 81 of the Bills of Exchange Act 1882 give statutory power to the ‘A/C Payee’ crossing when it is used. The rules mean that a cheque that bears the ‘A/C Payee’ crossing can only be paid into an account in the name of the recipient precisely as it appears on the cheque.
- A cheque payable to two people (generally known as a joint account) can only be paid into a report in the name of the two people precisely as they appear on the cheque. The crossing cannot be deleted, nor can the cheque be transferred over to a third party.
So, if you have to pay your staff by cheque, have you discharged your agreement to pay them on a particular day? Case law is limited; however, on a matter related to Housing Rent (Andy Coltrane v Janice Day (2003)), the Court of Appeal reviewed and applied the case law on the date of payment where payment is made by cheque: payment by cheque is a conditional payment; if the payee accepts the cheque and the cheque is honoured on the first presentation, then the condition is satisfied, and the payment is taken to have been made when the cheque was delivered.
Fundamentally the above appears to say a cheque is acceptable if the receiving person accepts it. However, this does not consider that the cheque will be crossed ‘A/C Payee’ only. What if the recipient does not have a bank account? Effectively they are unable to present the cheque. Therefore payment has not been made. The only option for the employee (unless the Issuer offers an alternative payment method or arranges encashment locally) is to convert the cheque through a cash checking bureau, and as you will note from the table below, this is at a cost to them;
In answer to the headline, Paying staff by cheque – Have you paid them? Yes, you have paid them, but at a cost to them. Is this morally or even legally correct, and have you not considered the possible alternatives? Don’t also forget that an employee can insist on being paid in cash!
Alternative to Traditional High Street Banks
If you can’t get a bank account with a traditional high street bank, don’t worry as there are other options and alternative available to you.