Canada has one of the most efficient cheque clearing systems in the world and, while the use of cheques has been declining with the growing popularity of electronic and card payments, financial institutions in Canada still process nearly a billion cheques every year.¹

A cheque is an agreement of payment between two individuals or organizations.  So when you write a cheque, you are agreeing to pay another individual or organization money that you owe them and you are instructing your bank to make that payment.

Here is some helpful information about the use of cheques and how they are processed by financial institutions.

How Cheques are Processed

All cheques must be processed – or cleared and settled – through the payments system.  Here’s how that works.  When you deposit a cheque into your account, your bank will send the cheque to the bank of the person who wrote the cheque. That bank makes sure that the cheque is legitimate and there are enough funds in the cheque-writer’s account to cover the cheque, and then sends the funds to your bank.  

This process can take a few days but, for most cheques, the bank makes the funds available to the customer right away.  However, it isn’t until your bank gets confirmation from the cheque-writer’s bank that it knows for sure that the funds are available. What most people don’t realize is that, until it receives that confirmation, the bank is really advancing you the money. 

Cheque Holds

Banks may apply a hold on funds deposited by cheque to manage the risk from losses in case there aren’t sufficient funds in the cheque-writer’s account to cover the cheque. This hold protects you too since you won’t be spending funds from a cheque that might be reversed because of insufficient funds in the cheque-writer’s account. Banks are required to provide their hold policies in writing when an account is opened. The maximum hold period for most cheques deposited to a Canadian dollar account is four business days, and banks must make $100 available within a day.

If your financial institution is currently putting a hold on your cheques, ask if there are alternatives to this hold.  In addition, rather than receiving a paper cheque as payment from your employer, the government, or individuals, see if the funds can be deposited directly into your account by direct deposit or ask them to send you an e-mail money transfer: then you will have immediate access to all of the money.

Non-sufficient Funds (NSF)

If you deposit a cheque and there is not enough money in the cheque-writer’s account to cover the cheque, the cheque will be returned to your bank as NSF or non-sufficient funds. If your bank had given you immediate access to the funds, it will then remove the funds from your account. If you were the cheque-writer, very often your financial institution will charge an NSF fee. You can avoid these fees by ensuring there is enough money in your account to cover the cheques that you write.  

Post-dated Cheques Cashed Early

Sometimes a post-dated cheque is deposited before the date on the cheque. Banks have processes in place to look for post-dated cheques and do their best to make sure they aren’t processed early.

You can help in detecting post-dated cheques that are cashed early. Try to regularly review your transactions through online, mobile or telephone banking or at an ABM. If a post-dated cheque you wrote is mistakenly processed before its date, you should contact your bank to let them know. The cheque can be returned and the amount credited back to your account up to the day before the date written on the cheque.

Cheque Cashed By a Different Individual (Counter-Signed Cheques)

Some banks allow cheques to be cashed by someone other than the person named on the front of the cheque if it is counter-signed. For example, if John Smith writes a cheque to Jane Doe, she can endorse the cheque on the back and give it to you in payment of a debt. You can then endorse the back of the cheque and deposit it into your account. This is called counter-signing a cheque. To protect against someone else fraudulently cashing a cheque, John Smith can write “For deposit only to account of payee” with his signature, which ensures the cheque can only be deposited into Jane Doe’s account. 

Check with your financial institution to find out if they accept counter-signed cheques and if they have any specific requirements that apply.

Stop Payment

A “stop payment” is a service provided by your financial institution, usually for a fee, to prevent a cheque you wrote from being cashed. However, putting a stop payment on a cheque does not guarantee that the funds will not be withdrawn from your account. For a stop payment to work, your request must be made and processed before the cheque is cashed. In addition, occasionally, a cheque with a stop payment may still be cashed if incomplete or incorrect information is given to your bank regarding the amount or date of the cheque, or the name of the person to whom the cheque was written.

If a stop payment doesn’t work and your cheque is cashed, you are still responsible for the cheque. To get the money back, you will have to contact the person or organization to whom you wrote the cheque.

Fraudulent or Counterfeit Cheques

Sometimes criminals will create counterfeit cheques or change the name or amount on a legitimate cheque. This is fraud. There are a number of steps that you can take to protect yourself from cheque fraud. 

• Always keep your cheques in a secure location. 
• Review your monthly bank statement or regularly check your transactions through online, mobile or telephone banking. If you see transactions you didn’t do, notify your bank immediately and they will investigate.
• If you close your account, shred any unused cheques.
• If you receive a cheque that doesn’t look legitimate, ask for a different form of payment.
  

You can learn more about cheque fraud and how to protect yourself against becoming a victim in the Fraud Prevention section. 

Mobile Cheque Deposit

You may have heard recently about a new way to deposit your cheques. Mobile, or remote, cheque deposit allows you to take a picture of your personal cheque, business cheque or money order (depending on the bank) and deposit it electronically using your mobile device. Many banks in Canada now offer this service. 

The process is simple. Sign the back of your cheque and then log into your bank’s mobile banking application, choose the picture deposit service and follow the instructions. The process is secure and your financial information is not stored on your mobile device. All financial information is also securely encrypted. You can then write “deposited” on the cheque and store it in a secure place for a short period of time (two weeks is generally recommended) before destroying it. 

¹ Payments Canada, The Role of Automated Funds Transfer Payments in Canada’s Declining Use of Cheques, July 2015. Source: www.payments.ca/sites/default/files/2015-role-aft-cheque-decline.pdf