Post Dated Cheque Meaning Example Benefits

Post Dated Cheque Meaning

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 time and the date mentioned has no value, whereas, in India and Australia, post-dated cheques cannot be paid until 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 check remains a deliberate payment delay.

Example of Post Dated Cheque

XYZ Ltd. is a private companyPrivate CompanyA privately held company refers to the separate legal entity registered with SEC having a limited number of outstanding share capital and shareowners. read more dealing in computer accessories manufacturing. The company must purchase different components as raw materials to assemble them as the final product. The company is a bit short of cash and will soon pay 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 two post-dated cheques of $5,000 each. The date mentioned in the first cheque is one month from now on, and the date in the other is two months from the current 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 honored and paid by the bank on the specific dates. Thus, on the date the supplier received the cheque, the supplier should not debit cash and credit account receivables. This is because post-dated cheques cannot be considered cash before the date mentioned in the cheque, and only on the date mentioned in the cheque leaf can one treat it as cash and deposit the same in the 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 cashed or deposited in the bank on and after 19th July 2020. One should always ensure that one has enough funds to honor 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 the bank will collect as a penalty from the cheque issuer or the payer. Banks in the US and UK will not need to check the cheque date unless the issuer has typically mentioned not to release the payment before the said date. In contrast, this is not the same in India and Australia, 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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#1 – No Fraud is Allowed

Though no law makes post-dated cheques illegal, it is unlawful 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 payeePayeeA payee refers to a person, business, government, or any other entity that receives payment for providing goods or services.read more can present the cheque at any time unless and until the payer mentions to the bank that the cheque cannot be encashed before the specified date. This is applicable for countries like the US and UK where if required, the payee can present the cheque at any point of time, and if there is no instruction from the payer to the bank; the bank must honor the cheque, which means the bank is 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 instructions to the bank, and the bank can tell us exactly how to do it. Furthermore, different banks have different rules on how long they will continue to track to prevent premature payments, which are again dependent on the user paying certain fees for this monitoring.

Laws of Post Dated Cheque

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 any point. 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 in UK banking laws. Under the Bill of Exchange and Banking Act 1882, a bill is not invalid only because it is post-dated or ante-dated.

Benefits

It acts as an 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 cover his position for lack of funds by buying some time before making 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 parties that the transaction will surely occur on a future date.Only that it is post-dated or ante-dated.