I have written quite a few times about my dislike of all things cheques (checks for anyone who doesn't have poutine on their Wendy's menu). With all their convenience, there are so many downsides to writing and accepting cheques.
The Post-Dated Myth
A couple years ago, a bank employee told me that banks will physically scan less than 5% of cheques that pass through their virtual hands. What I mean is, if I were to deposit 100 cheques into the ATM at my bank...all of which had something wrong with them...less than 5 of those errors would get caught. No idea if that number is accurate, and it's probably much better when you go to a teller.
Because of this, the once useful post-dated cheque has become completely pointless. Before companies could automatically withdraw money from your bank account or credit card, a promise of guaranteed funds on a specific date in the future was achieved by post dating a cheque. Rent cheques are a common use for this. I want to rent an apartment @ $500/month, so I give the landlord cheques dated the 1st of the month for the next __ months.
When The Myth Was Busted
This system fell apart for me a few years ago with one of my previous clients. I learned that the date on the cheque is more of a guideline than law. I had written a series of post-dated cheques to a vendor. Each cheque was for a rather large sum of money. I entered the dates in my calendar, and sent the cheques in the mail.
About a week later I awoke to find a rather large overdraft in their chequing account. As you may suspect, it was due to the fact that all of the cheques had been deposited at once. In this case, the address the vendor used was a lock box at their bank, which is something large companies do for their receivables. It's a PO box at the bank, and any cheques that show up in the mail are automatically deposited. Nobody reads dates, or checks to see if they're filled in correctly.
When I spoke to my client's account manager, she told me that this was very common. Although occasionally a teller will catch the date, most won't. She told me that banks were frowning on post-dated cheques, since there was nothing stopping the recipient from depositing the cheque early.
The Good Ol' Days
This was not always the case. I do recall on several occasions having a cheque NSF because someone tried to cash it early. The bank would spot the error, and then return the cheque. When all of the employees who manually entered the cheques were fired, and replaced by computers, this extra level of security disappeared.
Like rent, there are probably still times when you will be asked to do this. Try to find alternatives, which may just mean showing up in person on the 1st of the month. At least according to this one bank manager, the bank has no obligation to NSF the cheque if the funds are available. So, if you've got enough money in your account to cover 12 months of post-dated cheques, this one bank was not going to stop them from all clearing on the 1st month.
I can only assume that if the banks aren't looking at dates, they probably aren't looking at other things either. Do they check to see the signature is legit? Sadly...probably not.
As I've said before, I know business cheques are convenient. It's tempting to mail out cheques to your vendors BEFORE you have any money in the bank, and then scramble to get the deposits in before they clear. I have just seen too many instances when one bad cheque has caused an awful chain reaction that was painful to reverse.
What about you entrepreneurs out there? Do you have any cheque horror stories? Feel free to share your experiences below.
