Every business, irrespective of its size, relies on financial transactions to maintain smooth operations. Therefore, you need to look for an efficient method to make and receive your payments.
Today, a lot of businesses are turning to electronic and online transaction methods. However, many still prefer to use traditional options like cheques. To understand what works best for you, here is a list of the pros and cons of cheques for business transactions.
Advantages of Using Cheques
Here are some advantages of cheques that have retained them as a reliable option for business transactions.
- It is the simplest option for a new business: Getting a cheque is very easy when you start a new business and have just moved your accounts to a new bank. It may take some time for you to set up electronic facilities. For example, you have to submit requests for login credentials for net banking services. You also have to complete many formalities to get options like POS to receive your payments.
- You get some leeway with your funds: A cheque takes some time to process. It is beneficial for small businesses. If there is any financial emergency during this time, you at least have some backup in your account to fall back on. You can then arrange for funds to make sure that the cheque clears.
- Easier to rectify wrong transactions: When you issue a cheque and get deposited in the bank, it takes some time to be processed. At this time, if you realise that the cheque is not authorised or has any issue concerning the details mentioned, you get some time to act. You can issue a stop payment on the cheque before it gets cleared. However, with electronic transaction methods, the procedure to rectify an issue is more laborious since it occurs immediately. You have very few options to stop a transaction before it is complete.
- Your customers have more payment options: You must understand that many individuals still prefer to make payments using a cheque. They may also be experiencing technical issues concerning their online transaction options. When you are not open to opportunities like cheque transactions, you limit your customer base. You may even delay the closing of a deal because of restrictions in the payment methods accepted. The customer base also widens because you include individuals who are more comfortable with cheque transactions as well.
Disadvantages of Using Cheques
Here is a list of disadvantages of cheques that have urged people to switch to modern electronic options to make and receive payments.
- A cheque may be returned or stopped: This is a very pertinent issue if you are selling any goods. Your customer or client might make a payment using a cheque and take the goods. Then, they may stop payment or may not have enough funds in their account for the cheque to clear. In that case, you are liable to pay for the goods yourself. The procedure to recover payments from such customers is also quite arduous in most cases.
- Bookkeeping is more challenging with cheques: Every time you write a cheque, you have to note the cheque number and details of the account holder. If not, you will have to wait until the cheque clears to see the transaction details in your account statement. On the other hand, you get records instantly when you use electronic banking methods. You receive a transaction ID along with all the details of the payment via SMS or email. It can be of great use in case any transaction gets into a dispute in the future.
- The chances of fraud are higher: Cheques are easier to access and are more open to fraud. Writing or signing a cheque is very easy for someone to do. They can easily forge a cheque and pass it out as an authorised one. It is an essential point for larger firms to consider because they are more susceptible to financial fraud. Someone may issue or receive fraudulent cheques. These are very hard to track and recover even after the suspected fraud has been proved.
- It is time-consuming to clear a cheque: If you receive a payment via cheque, you have to visit the bank and deposit it first. Then, you will have to wait for up to 7 business days for the cheque to clear. If you are a smaller organisation, you may not have the workforce or the time to go through this process each time you receive a cheque payment.
- You need to reapply for checkbooks: If your checkbook runs out of cheque leaves, you must send an application for a new one. If you are a large organisation that carries out several transactions each day, this may turn out to be quite the hassle. You are also required to go in person to collect these cheques or write an authorisation letter for someone else to take it on your behalf.
Whether you wish to use cheques for your business transactions or not depends on two factors:
- The size of your organisation and operations
- The most preferred method for your customer.
No doubt, cheques are outdated in a modern business setup. However, it is worth being open to this form of a business transaction as they give you several advantages. Additionally, it is one extra channel to make and receive payments. Therefore, it is never a bad thing for any business.
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Q. Is it advisable to use cheques for a business transaction?
Ans. Cheques are still quite a commonly used method for business transactions. They provide a simple option to initiate transactions until you complete the formalities for other electronic options. You also have an additional opportunity to receive payments from your clients and customers. So, depending upon the scale of your business and the preferred choices for customers, you may continue to use cheques.
Q. What should I do if a cheque that I received bounces?
Ans. The first step to take in this case is to contact the issuer of the cheque. Usually, it is an oversight or another issue in the account that caused the cheque to bounce. In that case, they may resolve the issue immediately. However, in other cases, when the client is defaulting wilfully, you can give them up to 30 days to make the payment towards your goods and services. If they still fail to do so, you may begin legal proceedings for your recovery.
Q. Why is the use of cheques declining?
Ans. The use of cheques is declining for several reasons:
- There are faster and more convenient options available for people to carry out their business transactions.
- Cheques tend to take time.
- It would be best to go through the hassle of depositing the cheque before it can be processed.
- Cheques are very vulnerable to fraudulent transactions.
Another important cause for the decline in the use of cheques is the increasing interest in paperless transactions.
Q. How to get a new cheque book issued for my bank account?
Ans. The account holder must provide a request letter for a new cheque book with details of the bank account. They may authorise anyone to collect in on their behalf. In the case of businesses or organisations, the letter must also include the company's official stamp for the request letter to be accepted. The chequebook is issued immediately upon the receipt of the letter.
Q. Do all the partners have to sign for a cheque to clear?
Ans. In most cases, all the partners must sign the cheque to issue it. However, this entirely depends upon the organisation's nature and the terms mentioned in the partnership deed. In some cases, a single partner may get recognised as the authorised signatory for the cheque.