A post dated check is a check on which the issuer has stated a date later than the current date. It is used when the issuer wants to delay payment to the recipient, while the recipient may accept it simply because the check represents a firm date on which it will be able to deposit the check. This approach is used to improve the odds of being paid, especially when the issuer has little credit. A person writing a postdated check may violate the law if the check is returned by the bank to the recipient because the maker’s account does not have the funds on deposit necessary to cover the check.
- 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.
- The date you choose to use is not part of a legally binding agreement between you and the payee.
- People can postdate several types of payment methods, including checks and electronic payments.
- The only way to guarantee they’ll actually work is to pay extra fees to your bank.
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Suppose Jim has to pay a supplier INR 2,000 on 22d May for transactions he made 40 days ago. Since Jim lacks the funds to pay the supplier, he agrees to send the supplier two INR 1,000 cheques, one dated 20th June and the other dated 20th July. Financial stability is commonly regarded as the foundation of any organisation. When a business is involved in sales or purchases, it is necessary to have a practical accounting system. For example, assume that today is January 1, and you’re writing a check. In general, you’d put the current date of January 1 on the check, but you could just as easily postdate it a week and write January 8 on the check, instead.
Not a Guarantee for Check Writer
To simply put, post-dated cheque is one which is drawn with a date which is after the date on which cheque was written. However, it is the traditional way of making payments, and you can opt-in for newer and more advanced methods of future payments like online transfers, automatic fund transfers, etc. You can also give a standing instruction to the bank to make payment to any account at your desired date. Using these ways, you can avoid all kinds of extra fees and penalties that come with a post-dated cheque. Based on the date mentioned in the cheque, the payee decides when to get it encashed.
As a bill of exchange, a cheque must be drawn out to a specific banker and intended to be paid on demand. Cheques are one such instrument that can be used in multiple ways to make payments. If the customer sends us a cheque, the funds are credited to our bank on the cheque date. 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. A post-dated check (PDC) is, as the term implies, a check you issue in advance to your payee, but the date indicated is some date in the future.
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. Drawers also use it to avail products and services before paying for them upfront.
In some cases, direct evidence may exist that proves that the defendant wrote the postdated check with the intent to cheat the recipient out of goods or services. In such cases, the defendant’s admission, if believed, would provide the required proof of the defendant’s criminal intent to defraud the victim with a postdated check. Postdating a check refers to writing a check but putting a future date on the check instead of the date that the person writes the check. People typically postdate checks intending that the recipient not deposit or cash the check until a later date, because payment is not due until that later date. For example, someone might mail a check for a utility bill before payment is due, and put the bill’s due date (not the date the check is being written) on the check. Realistically, 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.
Cash flow Statement
In the United States, it is generally legal to issue post dated checks. When a person writes a post dated check, the writer of the check intends to have the recipient get paid at a future date. The most common reason why a post dated check is issued is that the person issuing the check does not want to pay the use compound interest formulas beneficiary before a certain date. By giving post dated checks, you are giving your landlord the comfort that he or she has the potential payment of your rent. If you have taken a short-term loan from the bank, they might want to guarantee their future payments, so they might ask for post-dated cheques.
Example of a Post dated Cheque
A cheque is defined as an instruction to the bank asking to pay a stated sum from the owner’s account to the cheque presenter or drawer. Cheques are written or printed in a specific format and in a form that is not easily replicable. The validity of the cheque remains for three months from the date of issuance, regardless of the number of days between the two dates. For example, if someone issues the cheque on January 15th, 2021, it will be valid until March 14th, 2021. However, the payer utilizes it when they must hand over many post-dated cheques to cover future payments. The recipient agrees to such a payment arrangement because it enhances the payment odds.
Overall, it is a powerful financial instrument if used wisely and strategically. In banking parlance, the term “post-dated cheque” refers to a cheque written by the payer (drawer) for a future date. In simpler terms, a cheque is written with a future date beyond the date on which it was written. In this case, the drawer should always maintain enough funds in the account so that the cheque doesn’t get dishonored/bounced on the specific date mentioned in the cheque. How can a prosecutor win a guilty verdict if the prosecutor must prove that the defendant had the intent to defraud the recipient of the postdated check?
Banking
From the perspective of the recipient, there should be no entry to record the increase in cash until the date listed on the check. Thus, the date on the check effectively postpones the underlying accounting transaction. Dishonoured cheques are punishable with up to a year in prison or the payment of a fine equivalent to twice the amount of the cheque under the terms of section 138 of the NI Act. When a banker pays a PDC cheque and then dishonours a cheque that was supposed to be paid, it will be returned to the owner because of a lack of funds. The supplier undertakes to hold and deposit the cheques as specified. In addition, Jim ensures the supplier that his bank will pay the cheques on the specified dates.
They also help keep business activities running without shutting them down due to a lack of funds. From the payer’s standpoint, the best way to prevent payments from being released early is to notify the bank. Cashing a postdated check might be more difficult than depositing it.
Postdated payments cannot be withdrawn from an account until the date specified. A cheque prepared with a future date is called a post dated cheque or PDC cheque. As a result, the date on the cheque is after the date the cheque was written.
What are the Alternatives to a Post-dated Cheque?
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 this case, you’ll write a post dated check for $500 by putting a date after the date you’re expecting to be paid. 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. Post-dated cheques are normal cheques with a future date written on them. The cheques cannot be honoured by the banks before the date mentioned on the cheque.
This means that the bank or credit union will not wait until the date you put on your check before allowing the recipient to cash it. However, they all have clear rules and policies that apply to checks bearing a future date. However, there are instances that you can get in trouble for writing a worthless check. The person receiving your check will not be able to cash your check until the day that is indicated on the check.
Otherwise, your check will “bounce” and the landlord will receive an “NSF” or “Not Sufficient Funds” notice. Your August 1st posted check will be cashable as of August 1st, and so on. As you can see in the image of a sample cheque above, several blanks need to be filled in before you send the cheque to be honoured by the bank. All information is subject to specific conditions | © 2023 Navi Technologies Ltd. In the absence of a legitimate response from the responder, the interested party has 45 days to file a case.