THE CHECK

Accelerate your business with these expert tips about "The cheque". Analyse and discover this TIP!

The cheque is a payment instrument consisting of an unconditional order for payment issued by the drawer in favour of the payee and backed by the drawer's own solvency. There are two types of cheques: bank bonds, issued by financial institutions, and personal bonds, issued by individuals.

Despite its popularity, the cheque has certain drawbacks. On the one hand, there is the risk of loss, theft or forgery, which can jeopardise the security of the payment and the solvency of the drawer. In addition, it is necessary to present it for cashing, which entails higher processing costs and possible taxes or stamps.

Compared to wire transfer, the cheque lags behind, as the latter is less risky, faster, more convenient and more efficient. With wire transfer, the need to present a physical document is avoided, processing costs are reduced and there is greater control over the timing of payment.

It is important to note that, if you decide to collect by cheque, it is advisable to check the goodness of the document before sending the goods, in order to avoid possible fraud or non-payment. In any case, bank transfers are a safer and more efficient option for making payments in international trade.

The cheque is a means of payment that can have advantages and disadvantages for the exporter.

Some of them are:

ADVANTAGES

• Universal use: the cheque is widely accepted in many countries as a means of payment.
• Lower cost than a documentary credit: the cheque is generally cheaper than a documentary credit, which is a more complex and costly means of payment.
• Initiative in payment: the buyer writes the cheque, which may indicate a serious commitment to pay.
• Greater security than a transfer: in some cases, a cheque may be more secure than a wire transfer, as it requires the original signature of the sender and can be more easily traced if there is a problem.

DISADVANTAGES

• Risk of loss, theft or counterfeiting: as the cheque is a physical document, it can be stolen or forged, which can create security problems for the exporter.
• Need to present it for collection: the cheque must be sent to the bank for cashing, which can lead to delays and additional costs.
• Processing costs: cheque processing costs, such as stamp duty or tax, may be higher than for other means of payment.
• Lack of control over the timing of payment: the exporter has no control over when it will be paid, which can lead to uncertainty in cash management.

In general, Although the cheque is a widely used means of payment in many countries, the exporter should carefully assess its advantages and disadvantages before accepting it as a form of payment, especially if it is a personal cheque issued by an unknown or unreliable buyer. The solvency of the cheque is the solvency of the issuer (the drawer).

THUS WE NORMALLY DISTINGUISH BETWEEN:

• Bank cheques (banking institution).
• Personal cheques (non-financial drawer).

The former enjoy a better reputation and wider acceptance than the latter.

In any case, the cheque has a number of disadvantages arising from its physical existence:

• The risk of loss, theft or forgery, with a large part of their security resting on the signature.
• The need to present it for collection, i.e, to travel to your place of payment.

Accordingly, the processing costs are higher when the we compare with those of the transfer. In addition, with some frequency the cheque is subject to any kind of tax or stamp duty.

If we add to this the risks of theft and counterfeiting, as well as the sometimes very long periods in which it can be returned and in which the amounts received can be reclaimed - for example, in cases of fraud -, then we have to take into account the fact that the amounts received may not be returned to the customer.In the case of a bank transfer, we can conclude that the transfer is the best alternative to the cheque.

With virtually none of its drawbacks, a SWIFT transfer ends up being the most efficient, convenient, fast and cost-effective means of payment.

ADVICE AND RECOMMENDATIONS

For the seller universal use lower cost than a letter of credit - no control over the timing of payment - higher cost than a transfer - time to dispose of funds - less security - possibility of being subject to stamps.

For the buyer universal use lower cost than a letter of credit initiative in payment requested by BS Online - risk of loss or theft.

• To be avoided: cheques sent by post can be subject to theft and fraudulent manipulation. It is always hand delivery is recommended, the dispatch by a system of "courier or, preferably, its replacement by bank transfer.
• Expert advice: if you are paid by cheque, whether by bank or personal cheque, check the goodness of the document received before sending the goods.