Cheques: returned to drawer

3 Key Takeaways

• Cheques can be returned to the drawer for various reasons, most commonly due to insufficient funds in the drawer’s account.
• Other reasons include incorrect information on the cheque, a stop payment order, or a closed account.
• If a cheque is returned, the payee (the person to whom the cheque is written) should contact the drawer to resolve the issue and obtain a new payment.

What does “Cheque Returned to Drawer” Mean?

When a bank receives a cheque for payment, it checks whether the drawer’s (the person who wrote the cheque) account has sufficient funds to cover the amount. If the account has insufficient funds or there is another issue, the bank will refuse to pay the cheque and return it to the drawer, marking it with the reason for the return.

Importance of Understanding “Cheque Returned to Drawer”

• Financial Implications: A returned cheque can result in financial consequences for both the drawer and payee. The drawer may incur fees from their bank, and the payee may not receive the payment they are expecting.
• Legal Implications: In some cases, repeated instances of returned cheques can have legal ramifications, such as affecting credit scores or leading to legal action.
• Communication: Understanding why a cheque was returned is crucial for effective communication between the drawer and payee to resolve the issue promptly.

Reasons Why Cheques are Returned to Drawer

• Insufficient Funds (Refer to Drawer – RTD): This is the most common reason, indicating that the drawer’s account does not have enough money to cover the cheque amount.
• Refer to Drawer – Please Represent: Similar to RTD, but the bank may attempt to present the cheque again for payment a limited number of times.
• Incorrect Information: Errors in the cheque, such as an incorrect date, amount, or signature, can lead to its return.
• Stale Cheque: A cheque that is presented for payment after a certain period (usually six months) from the date of issue may be returned.
• Stop Payment Order: If the drawer has requested the bank to stop payment on the cheque, it will be returned.
• Closed Account: If the drawer’s account has been closed, the cheque will be returned.

Real-World Applications

Understanding the reasons for returned cheques is essential for both drawers and payees. It helps drawers avoid the negative consequences of bounced cheques and allows payees to take appropriate action to obtain payment. If you receive a returned cheque, contacting the drawer promptly to resolve the issue is recommended.