The use of cheques as a method of paying invoices is becoming increasingly surpassed by more popular methods of payment, such as direct debit and BACS transfers. Despite this, it is important for both businesses and individuals to be aware of the remedies available to them when they receive a cheque in payment of an invoice which is later dishonoured.
Creditors have a cause of action against a debtor on the basis that cheques are construed as the equivalent to cash. By merely signing the cheque, the debtor has confirmed that the cheque will be honoured and is therefore liable to the creditor in the event that it is dishonoured.
What should you do when you find out the cheque has been dishonoured?
As soon as you are aware that a cheque has been dishonoured, retain a copy of the cheque and a notice of dishonour should be given to the debtor. If no response is received in the time frame you have stipulated, court proceedings can be issued for the original debt and in the alternative the cheque amount, plus costs and interest.
There are very few ways for a Defendant to defend this type of claim. If the claim is defended, the Claimant can apply to the Court for Summary Judgment on the basis that the Defendant has no real prospect of defending the claim.
Dishonoured cheques will no doubt present problems for businesses' cash flow but many may even not be aware of this right to take legal action. Also rather interestingly, the Court of Appeal in the case of Esso Petroleum Co. Limited v Milton 1997 treated a cancelled direct debit in the same way as a cancelled cheque.
If you experience a cheque being dishonoured, please get in touch with debt recovery solicitors who will be able to assist you.