Dishonoured cheque

Dishonoured cheques (also spelled check) are cheques that a bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honour a cheque, with non-sufficient funds (NSF) being the most common one, indicating that there are insufficient cleared funds in the account on which the cheque was drawn. An NSF check may be referred to as a bad check, dishonored check, bounced check, cold check, rubber check, returned item, or hot check. Lost or bounced checks result in late payments and affect the relationship with customers. In England and Wales and Australia, such cheques are typically returned endorsed "Refer to drawer", an instruction to contact the person issuing the cheque for an explanation as to why it was not paid. If there are funds in an account, but insufficient cleared funds, the cheque is normally endorsed “Present again”, by which time the funds should have cleared. When more than one cheque is presented for payment on the same day, and the payment of both would result in the account becoming overdrawn (or below some approved credit limit), the bank has a discretion as to which cheque to pay and which to dishonour. A bank has a general discretion whether or not to honour a cheque that will result in an account becoming overdrawn, but a payment on one occasion does not bind the bank to do so again on another occasion. A bank cannot partially pay on a cheque, so that it must either pay a cheque in full or dishonour it. If a bank declines to pay a cheque, it must promptly return the cheque to the person who deposited it or presented it to be cashed. In general, a bank can only pay out of the account on which it was drawn, and cannot draw on any other account that the customer may have at the bank, unless expressly instructed to the contrary. Cheques may be dishonoured by a financial institution because: There are insufficient cleared funds in the account to cover the value of the cheque. The account holder has instructed the bank not to pay the cheque (called a stopped cheque).