Home > Uncategorized > The abolition of cheques

The abolition of cheques

A copy of my credit management update to clients sent early Jan
 
 
Hi
 
Provided you are not entirely snowbound, a Happy New Year to you all
 
This weather has reminded me of an incident a few years back where the snow and ice badly affected credit management. In the days before bank transfers became widespread, it was customary to send couriers to collect particularly significant high value cheques from clients. I clearly remember one bike carrying a remittance for £1.5m encountering black ice. I regret to say that I cannot recall whether my concern for the courier outweighed my concern about the whereabouts of the that valuable piece of paper….
 
But it would appear that cheques are soon to be consigned to the dustbin of history. The banks, whos word we really trust of course, tell us that they will be abolished before 2018
 
Is this a good thing? For credit managers, probably not…
 
There are two reasons for this and they both relate to very difficult collections.
 
Firstly it comes down to the very nature of “a collection”. Unfortunately from time to time it is essential to visit a client to recover a debt. Now before anyone sniggers about baseball bats, these visits will be almost invariably agreed beforehand and in my experience cordial and constructive (mostly…). Yes, that is the way it works…
 
The advantage of doing so is that you get to see the client. It is amazing how you can pick up on the vibe of a business but even more importantly, a face to face meeting will (if handled correctly) be very informative.
 
So why wouldnt the debtor simply send the funds across and reject a meeting? Time is the answer and they probably wont send the funds across anyway. But companies experiencing cash flow difficulties will welcome the extra couple of days that a cheque payment will bring.
 
Of course, a cheque isnt a guaranteed payment, but actual “bouncing” of cheques is rarer than sometimes assumed and of course, a ” cheque bouncer” would not have made a bank transfer in the first place. That brings us to the second point, which is tangiable security. If a cheque doesnt clear, you are in a very strong position legally. In fact in the USA and certain other countries, it is technically criminal offence.
 
And that brings us back to the nature of a meeting and the result you want to achieve. I will keep this brief, but think about whether you would want to come away with a cheque or a promise of “I will transfer it when i get back to my computer”? We need that option dont we?
 
Lastly there is the issue of “post dated cheques”. What will replace that useful security? Have the banks made a suggestion yet? Given that post dated cheques are technically frowned upon by banks, probably not, but I can see there being a revival in Promisory Notes (which are still prevalent in europe, especially Spain).
  
There are other reasons to be uncomfortable about this dictat from our beloved financial institutions, but I have some snow to clear….
 
Have a good weekend
 
 
Clive Pacey
CPCM Credit Management
 
 
 
 
 
Tel 07956 138895
 
 
 
 
 
 
 
 
 
 
 
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Categories: Uncategorized
  1. January 14, 2010 at 10:27 am

    I totally agree with you. I run a credit management company and more often than not, businesses will say “your cheque’s in the post”. People use it as extra credit to help with cashflow.
    Many times have I come away from a meeting with a cheque in my hand. I feel like I’ve accomplished my job, the company I collected the cheque from has fulfilled their end of the bargain but also allowed themselves a couple of extra days free credit while the cheque is cashed.
    I read an artical in Credit Today that the UK Payments council board have set a target of October 2018 to abolish all cheques, however it will be critically reviewed in 2016 to decide whether sufficient change has occurred to do away with the cheques.

    You’ve made a very valid point, thanks Clive.

    Claire Freer

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