What is a Cancelled Check?
Definition: A cancelled check is the check that is returned to the payer as a receipt for the funds that were disbursed to the payee’s bank account.
It refers to the cashing of a check by a payee after receiving a payment from a payer. It is a canceled, prevented or cleared payment. A canceled check acts as proof of payment. Hence it must be maintained, and the payment reflected on the payer’s statements. Cancelling means it cannot be used for any other payment, and in this case, the payee is the person or entity receiving the payment.
Cancelled Check Example
Morgan supplied goods to ABC Company. The company paid him $500 in check. Morgan deposited the check into Acute Bank to cash it. The bank presented the check to ABC Company’s bank for clearing, and a deduction of $500 is made. The bank returns the check to ABC Company to show proof of payment received and also includes the same on the bank’s monthly statements.
How to Cancel a Check?
Generally, most checks should take a maximum of two business days to clear. At times, some banks may choose to clear a portion of the amount immediately. Say in the case of Morgan’s $500 it would be $250. However, there are other limitations, which may defy this period, including the amount of the check. Significant amounts could stay on hold for as long as ten days.
Some financial institutions tend to consider whether or not you are a regular depositor. Take, for example, a freelancer who receives payment every fortnight or monthly. You may want to explain to the bank the nature of your work right from the initial deposit. It will facilitate the clearance of such future checks and also emphasizes the importance of establishing a healthy relationship with your bank.
Lack of enough funds in the account of the payer is another determinant of when the check would clear. In case of inadequate funds in the paying account, the bank will resend the check.
Other times, the banks will hold deposits made to new accounts. They take time to carry out due diligence on their owners before they can clear the paid amount.
It is strongly recommended to read and thoroughly understand the policies, terms, and conditions of any financial institution before entrusting it with your financial activities. Check holding policies are different from one bank to another
Are Checks Less Common Today?
There was a time when the use of checks was an everyday affair in almost every household in the United States. And the numbers kept rising. However, in recent years, things have changed drastically because the use of Checks has notably declined. Other alternative means of payment, including debit and credit cards, have taken a significant share of the market.
The availability of electronic banking is also on the rise. Mobile banking allows you to make deposits right from your couch. Nonetheless, there is a clique of people, which are still passionate about slips of paper, which means the use of checks will not fade away any time soon.
How to Avoid Falling Victim of Check Scams
According to the Better Business Bureau, hundreds of Americans have lost billions of dollars to fake check scams, which increase by the year. Scammers are so smart such that they will make a check appear so real and from a trustworthy company. It is easy to forge digital checks, and this what most scammers are using. On the other hand, they take longer to clear, hence you have all the time to figure out if it’s fake or not.
But even then, you must learn to identify a fake check. It means verifying through whatever means any check you receive, especially if it is from someone you are not familiar with. And if you have to deposit a check from an unknown person, wait until you are sure it has cleared before making any withdrawal. Better safe than sorry.