Should your shop take a cheque?

Take one from a buyer you know, for goods that can wait until it clears, and never as a substitute for cash on something walking out of the door today. A cheque is a promise with a delay inside it. Treat it as a payment only on the day the money is actually in your account.

The contractor who wants to pay by cheque

A man doing building work nearby has been sending his labourers to you for a month. Cement bags, wire, plastic sheets, tea and biscuits for the crew. The total has reached Rs 74,000.

On Thursday he walks in, pleasant and unhurried, and writes you a cheque for the whole amount. He wants a receipt, and he wants his page marked settled.

Your hand is already reaching for the register. Stop there for a moment. Nothing about this is wrong, and quite probably that cheque is good. But at this second, one of two things has happened, and you cannot tell which: either you have been paid, or you have exchanged a debt you understood for a piece of paper you have not tested.

The difference between those two is a few days and one habit.

A cheque is a promise with a delay in it

A cheque is the only common way of being paid where the paying and the payment happen on different days, and everything awkward about it comes from that gap.

Cash is finished the moment it touches your hand. A transfer to your account is finished when you see it. A cheque is neither: it is an instruction to a bank that only becomes money if the money is there when the bank looks.

Three things follow from that, and they are the whole subject.

It takes days. Between accepting it and having the money, there is a gap. In that gap your goods have gone and your cash has not arrived.

It can come back. Not always because somebody is dishonest. Accounts run empty, signatures do not match, a date is written wrong, the words and the figures disagree.

Marking the page settled is the real mistake. If you write "paid" in the khata the day you take the cheque, and it comes back a week later, you now have to reopen a page a customer believes he has cleared. That is the argument in when a customer says he already paid you, except this time he has an honest reason to believe it.

What actually happens between the paper and the money

1. 1He writes it, you take itNothing has moved yet. This is a promise, not a payment.
2. 2You write the details into your own recordCheque number, bank, date on it, amount, and whose page it is against.
3. 3You deposit it, ideally the same dayA cheque in your drawer is not safer than a cheque in the bank.
4. 4The bank looks for the moneyThis takes days, and it is where a cheque either becomes money or comes back.
5. 5It lands in your account: NOW the page is settledMark the payment on this date, not on the day the paper was written.

When to take one, and when to say no

The question is never "are cheques good or bad". It is "does this cheque, from this person, for these goods, make sense".

Take one when the buyer is known to you, when the amount is large enough that carrying cash is a nuisance for him, and above all when the goods can wait a few days or have already been supplied against a page you are comfortable with. A cheque settling an existing balance is much safer than a cheque buying goods that leave today.

Say no, politely, when the person is new, when the goods walk out the same hour, when the amount is bigger than you could absorb losing, or when anything about the paper itself is odd. Say no the same way every time, as a shop rule: "For a new customer I take cash or a transfer. Once we have a record together, I can take a cheque."

There is a middle road too, and it settles most of these evenings. Take the cheque, and let part of the goods go now and the rest when the money lands. A contractor who needs cement today and plastic sheets next week loses nothing by that arrangement, and you have turned a single large risk into two small ones. Say it as arithmetic rather than suspicion: "Half today, half when it clears."

And there is a third answer, which is often the best one: a bank transfer instead. It is instant, it is visible in your account, and it removes every one of the problems above. Most people who offer a cheque will transfer instead if you simply ask.

Five checks before you accept it

Take fifteen seconds and look at the paper properly. Most trouble is visible before you put it in the drawer.

Fifteen seconds of looking, before it goes in the drawer

• The date: today's, not next month's
• Your name, spelled the way your bank knows it
• The amount in figures and in words, and the two agreeing
• A signature, and no corrections scratched over anything
• The cheque number and bank written into your own record

Two of those deserve a word. The date is where most honest mistakes happen, and a cheque dated for a future day is not a payment at all, it is a promise for that day. The name matters because a cheque made out to the wrong name is a delay you will discover only at the bank counter.

Then write the details into your own record before the cheque leaves your hand: the number on the cheque, the bank, the date on it, the amount, and whose page it is against. If it ever bounces, that little line is what lets you talk about it precisely instead of vaguely.

And put it in the bank quickly. A cheque sitting in your drawer for a week is not safer there, and every day it waits is a day you could have known. Deposit it the same day if you can, and if you cannot, fix a habit: every cheque goes in on the next bank visit, no exceptions and no favourites.

The post-dated cheque given as security

This one deserves its own warning, because it is common and it feels clever.

A customer asks for goods on credit and hands you a cheque dated a month ahead, saying: "Keep this as security. If I do not pay, put it in." Everybody in the conversation feels reassured. Nothing has actually been secured.

If his account is empty on that date, the paper does nothing by itself. What you have gained is a false sense of safety, and what you have usually given up is the careful decision you would otherwise have made about how much credit this man should have.

So treat it as what it is: a promise about a future date, not payment and not a guarantee. Decide the credit on its own merits, exactly as how much udhaar to give sets out, and if you would not have given him the goods without the cheque, do not give them with it. If you do accept a dated cheque, put the date in your record as a payment date to expect, and keep talking to him before it arrives instead of waiting silently for it.

When it comes back unpaid

It will happen eventually, and how you handle the first hour matters.

Do not start with anger, and do not announce it in the shop. Ring him quietly and say the plain fact: "The cheque came back. What happened?" Very often the answer is ordinary and he will hand you cash within a day, embarrassed.

Reopen the page immediately, with a dated entry saying the cheque was returned, so the record matches reality again. Do it the same day, because a record that is wrong for a week is a record you stop trusting. Then ask for cash or a transfer, not another cheque, and stop new credit on that page until the amount is settled.

Say a Rs 74,000 cheque comes back unpaid

Amount you had already marked as settledRs 74,000

What your bank charges you for the returnRs 500

Two trips to the bank and a half day away from the counterRs 1,500

Goods sold in that time on the strength of money you did not haveRs 12,000

Cost if the page had never been marked settledRs 2,000

What one word in the register was worthRs 12,000

Say the cheque was Rs 74,000 and the bank takes a charge for the return. You also lose the days, the trips and the goodwill of a page you had already marked settled. That is what a bounced cheque costs even when it is eventually paid, which is why the rule about not marking the page settled is worth so much.

If the amount is large and he goes quiet, what you can do next depends on the rules where you live, so ask somebody who knows those rules rather than guessing. Whatever the answer, keep the cheque, keep the record, and keep your own account of every conversation.

Recording it so your books stay honest

Until it clears, a cheque is neither cash nor a settled balance, and most shops have nowhere to put that.

In Wasoolo you can keep the customer's page open with the payment recorded on the day it actually lands in your account, so his balance tells the truth in the meantime. Cash and bank accounts are kept separately, so money in your bank is not confused with money in the galla, and you can see what actually arrived rather than what was promised.

Write the cheque number and the date in the entry's note. It costs a few seconds and it is exactly the detail that settles a conversation weeks later, especially when a customer has paid you three times in three different ways, which is the same problem as sales landing in your mobile account.

And when it clears, mark it once, on the right date, in the right account. A record that shows the day the money truly arrived is the only version of the story that stays useful a year later.

Common questions

A regular customer will be offended if I do not take his cheque. What do I say?

Take it, and change what you do afterwards rather than refusing him. Deposit it the same day, and tell him plainly and pleasantly that you mark pages settled when the money lands, not on the day the paper is written. Said as a shop habit, nobody argues with it.

Is a bank transfer really better?

For a small shop, almost always. It arrives quickly, you can see it, and there is nothing to bounce and no trip to the bank. Ask for it first. Many customers offer a cheque only because nobody asked them for anything else.

Should I mark the customer's khata as paid the day I take the cheque?

No. Record that a cheque was received, with its number and date, and settle the page on the day the money is in your account. It is a few seconds of extra care, and it saves you from having to reopen a page the customer believes he has cleared.

A man offered me a cheque signed by somebody else, from another person's account. Is that all right?

Be careful. A cheque from a third party adds another person who has to be good for the money and another way for it to fail, and if it bounces you are chasing somebody you have no dealings with. Ask for a transfer or cash instead, or wait for it to clear before the goods move.

How long should I wait before treating a cheque as good?

Until the money shows in your account, which is the only signal that means anything. The number of days depends on your bank, so ask them once and then use that answer as your rule. Do not judge it by the customer's reassurance.

He gave me a post dated cheque as security for credit. Am I protected?

Not really. If the account is empty on that date, the paper alone does not produce money. Decide the credit as you would without it, keep the limit sensible, and treat the date as a payment date to follow up on. It is a reminder, not a guarantee.