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Business cheque myths busted

by John Knotek, ClearPay 

Since 1990, cheque volumes have been on a steady decline in Canada, directly offset by an increase in electronic payments (credit and debit cards, EFTs, wires and email money transfers). The insurance industry still issues a high volume of cheques and hence should be mindful of the myths versus facts for cheques today.


"Any cheque fraud is automatically reimbursed"
A quick internet search reveals several high profile court cases between banks and account holders over who holds liability for fraudulent cheques. Whether in or out of court, the points of discussion tend to revolve around Canadian Payment Association rules, the Bills of Exchange Act, and account agreements specific to each institution, together with the actions of account holders. The former two outline rules and timelines for counterfeit, materially altered, and forged endorsements. The latter contains important provisions on customers’ responsibilities and notification periods for suspect transactions. Sounds complicated? The reality is that for cheque fraud, the outcome of who will be at a loss is highly dependent on the facts and circumstances of each case. While it is a rarity for such cases to reach the courts, at a minimum, be prepared to lose a lot of time in working through a cheque fraud situation.  


"Post dated or stale dated cheques can’t be cashed"
Yes and no. Post dated cheques clear everyday simply given the sheer volume of deposits. Can you retrieve funds that have been cashed early? Yes as long as it is before the cheque’s date. Is it a pain?  Yes again. Similarly, cheques that are cashed six months after the cheque’s date are considered stale dated items (except Government of Canada cheques) and can be refused by the bank they are presented to. The reality is stale dated cheques get cashed and that there is no obligation by either bank to reverse a deposited stale dated cheque.  


"Stop payments are guaranteed"
The simple thinking on this is “if you wrote it, you pay it”. Once a cheque is out of your hands there is simply no sure way to prevent it from being cashed (unless you close your account or deplete the funds). While in general the banks and their processing centres have good systems in place to facilitate stop payments, there simply is no guarantee.  


"Cheques are the cheapest way to make a payment"
Not true. When reviewing cheque costs there are two primary considerations: the hard costs (cheque purchase, bank charge, mail) and the soft costs (handling, secure storage, obtaining signatures) all of which add up to industry averages of $8 to $40 cost per cheque. As cheque volumes continue to decline in Canada, the processing centres and printing companies will likely continue to increase prices for cheques due to losing economies of scale. 


With these myths busted and cheaper electronic payments available, is your view of cheques altered (pun intended)? If so, consider electronic payment solutions that are easy to implement, are incorporated into existing workflows and built for the insurance industry.

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