However, the recipient must trust that the writer of the check will have enough money in his or her bank account to cover the check value. In other words, a post dated check is a check that is validly written but can only be cashed as of the future date that you have indicated on the check. You’re writing a check to your landlord, but you don’t have enough money in your account. So you date the check a few days in advance — also called postdating it — hoping your paycheck will clear by then.
However, postdating a check can lead to inconveniences and ill feelings for the payee, such as when a tenant sends a rent check and may or may not have the funds ready to be withdrawn. However, it is illegal to write a check when you know you don’t have the funds to cover it, even if you hope to have the funds later. It is also illegal to pretend to pay someone without actually intending to do so.
Postdated Check: Is it Legal & How to Write One
It is also a quick way to continue business operations without having to stop for want of funds. Section 138 of the Negotiable Instruments Act applies to cheques and post-dated cheques alike. Under Section 138, Post-dated cheques should have an amount written with a future date for withdrawl. Another common reason why someone may issue a post dated check is because they do not have enough money in their bank account to cover the amount indicated on the check. By giving post dated checks, you are giving your landlord the comfort that he or she has the potential payment of your rent.
- Banks and credit unions generally state rules about postdated checks in their account disclosures.
- In simple terms, a cheque is a type of bill of exchange that instructs the bank to transfer funds from one person’s account to the account of another person or company.
- Since a time lag exists between when a person writes a postdated check and when a banker cashes it, sensitive information can remain exposed and vulnerable for days, weeks, or even a month.
- Hintz says that only criminal intent, such as intentionally not having enough money for a payment, can be grounds for check fraud.
On 15th July 2021, the supplier deposited the second post-dated cheque, repeating a similar transaction. So, there shouldn’t be any journal entries to record in the drawer’s books, i.e., there should be no reduction in cash until the specified date. Also, the recipient shouldn’t make any entry in their books, i.e., there shouldn’t be any increase in money until the selected date. So, the date mentioned in the cheque effectively postpones the recording of the underlying transaction. The drawer will capture the transaction accordingly on the specified date, reducing cash and payables recorded.
All You Need To Know About Post-dated Cheques
The Uniform Commercial Code (UCC) enables lenders to loan money, secured by a borrower’s personal property. Adopted by nearly every state, the UCC is a standard set of business laws that was first published in 1952 to regulate financial contracts. Article 3, Section 113 of the UCC outlines the rules for postdated checks. This section allows financial instruments to be either post or backdated and indicates that the payment cannot be made until the specified date on the instrument. You’ll need to check the specific laws for your respective state, but postdated checks are generally legal to write in the United States.
If the account does not have sufficient funds, the check might bounce, and you might have to pay insufficient funds or overdraft fees to your bank. You can try to get those fees reimbursed by the check writer, but collecting from somebody who’s already low on funds can be time-consuming, and if legal action is required, it could be expensive. In most cases, when you receive a postdated check, you can deposit or cash a postdated check at any time.
Tips for Receiving a Postdated Check
However, a rejected payment (or an unexpected withdrawal from your checking account) can cause numerous problems. If you properly provided instructions to your bank and they pay funds from your account anyway, your bank should be required to cover any overdraft charges that result. You may have further recourse against your bank for any other expenses you face. Post-dated cheque as the name implies is a cheque that carries a later date.
Also, you need to have a special accounting treatment so that the transaction will automatically affect the accounting books on the date of the post-dated cheque. If you have an option to exercise, then it is best to avoid writing a postdated cheque. Even if your payee (the recipient) is honest, they may make the honest mistake of forgetting and leaving you with bad cheque fee. Today, most of the banking process has been automated and banks rarely look at the date mentioned on the cheque. As per the provisions of section 138 of the Negotiable Instruments Act, a legal notice should be issued within 30 days of the date the cheque bounced or was dishonoured.
Payday loans customers frequently use postdated checks to repay their lenders. An individual borrows a small amount (usually $100 to $1,500) at a very high rate of interest. For example, $17.50 per $100 for seven days can translate to a rate of more than 900% on an annualized basis. Realistically, consolidated statements of comprehensive income the recipient of a post dated check may never notice that the check has been post dated, and so will record and deposit it at once. The bank is also unlikely to notice the date on the check, and in any case may have a policy of honoring all checks at once, irrespective of the check date.
Everything you should know about post dated cheques
For example, if the cheque was issued or is payable on 01 Jan 2023, the cheque will be valid till 31st of Mar 2023, irrespective of the number of days in between. The easiest way to pay someone, instead of writing a post dated check, is to schedule a payment using your bank’s online bill payment service. Every jurisdiction and country may treat post dated checks differently.
How long do regular cheques and post dated cheques have validity?
Therefore, the issuance or acceptance of post dated cheques is avoided. This helps avoid the possibility of a returned cheque owing to insufficient funds, which would involve additional fees. However, it involves inconvenience for the drawer, the drawee, and the payee.
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Let’s look at an example to see how post dated checks are used in practice. In Serbia post-dating cheques is a customary practice in the retail industry. A payday borrower typically writes the lender a postdated personal check for the amount of the loan plus a fee. The lender cashes the borrower’s check on the agreed-upon date, usually on the borrower’s next payday.
Some of the biggest banks, for example, note specifically that they can honor checks that are made out for future dates. Luckily for them, Foster waits to cash postdated checks, but he isn’t legally obligated. Post-dated cheques are used as short-term credit or loans and help businesses expand. It allows running business operations without stopping for lack of funds.
(3) For the purpose of determining whether a post-dated instrument is a cheque, the fact that the instrument is post-dated shall be disregarded. (2) A cheque is not invalid by reason only that- (a) it is not dated; (b) it is antedated or post-dated; or (c) the date it bears is a Sunday. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. We believe everyone should be able to make financial decisions with confidence.
When you have a postdated check, find out if the check was intentionally postdated and figure out a solution. Most bank services are now automated, and banks rarely verify the date on a cheque. In truth, issuing a PDC cheque is not always the best course of action. Because you never know if you’ll be able to have funds in your account on the specified future date.
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