WHAT YOU MUST KNOW BEFORE YOU WRITE THAT CHEQUE

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Many of us have a current account, which allows us the convenience of
writing cheques to pay bills. It is also common for us to receive cheques
that we deposit into our bank accounts. But just how much we know about
the usage of cheques?

MoneySENSE highlights a few important tips when writing cheques.

- Ensure you have sufficient funds. Before you issue a cheque,make sure
you have sufficient funds in your current account. Otherwise, you may
incur bank charges when the cheque is presented.

In this case, there are two types of fees that may be imposed: one is a
handling/administrative fee that is charged for the return of the cheque,
the other is a charge for incidental overdraft (OD) interest, which is
meant to cover the bank's loss in overnight interest.

When a cheque is drawn on a bank ("payer's bank") and deposited at another
bank ("payee's bank"), the payee's bank will send the cheque for clearing
to claim the proceeds of the cheque from the payer's bank. The latter will
then pay the proceeds to the payee's bank and the account of the payer
will be debited on the same day.

If the payer's bank account has insufficient funds, the bank will do a
reversal entry (i.e. credit back to the payer's account) on the next
business day. The payer's account thus will show an OD entry, and an
overnight incidental OD interest charge will be imposed on the overdrawn
balance in the payer's account.

For example, if the payer issues a cheque for $1,200 when he has only
$1,000 in his account, he will be charged overnight OD interest on $200
when the cheque is presented. The OD interest chargeable is usually
subject to a minimum amount and this amount varies from bank-to-bank. The
payer's account will automatically go into an overdraft position due to
insufficient funds, regardless of whether he has a pre-arranged OD
facility.

- Record your cheques. It is prudent to record the details in the cheque
register. Banks typically send current account bank statements on a
monthly basis. The terms and conditions for bank accounts usually indicate
that the customers should notify banks of any discrepancy within a certain
period, say, 7 days or 14 days.

- Cross your cheque where appropriate. You should cross your cheque if you
do not want it to be encashed or if you want it to be non-transferable. A
cheque may be crossed by drawing 2 parallel lines across the top left-hand
corner.

You should also cancel the word "or bearer" on the cheque, and add the
words "Account Payee Only" (or "A/C Payee Only") if the cheque payment is
meant only for the party stated on the cheque. If you intend to have the
cheque encashed by the holder, do not cross your cheque, do not delete the
words "or bearer" and do not add words such as "Account Payee Only" as
this would render the cheque irregular.

-Write the payee's name and the amount payable clearly. Handwriting on a
cheque should be clear and legible. Write the payee's name and the amount
in words such that there is no space for subsequent unauthorised
alterations. Any excess space should be struck off, for instance, by
drawing a line across the space.

Use the word "only" after the amount in words is written. Ensure that the
decimal point is clearly seen. Do not use the backslash symbol (/) in
place of the decimal point as the backslash symbol could be misread as the
digit one (1).

-Avoid writing postdated cheques and check all details. It is not
advisable to write postdated cheques as these cannot be cleared
immediately when the payee receives them. There may also be processing
charges when the cheques are returned. Never pre-sign cheques. If there is
any alteration made on your cheque, do sign in full against the
alternation.

This information is provided by the

Association of Banks in Singapore as

part of the MoneySENSE national

financial education programme.