Insufficient funds (cheque bounce reason)
In simple words, You can understand by the word insufficient funds means less or no funds in a cheque drawer’s bank account to get a clearing of the cheque. This is a cheque bounce reason which you can see maximum time cause the cheque drawer has no funds. If the fund is available at the time of cheque issue but when the payee presents that cheque in the bank there is no fund and the drawer was unaware of the balance.
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What are Insufficient funds?
The insufficient fund is the specified reason for the cheque bounce which tells us that there is no sufficient fund in the cheque drawer’s bank account and the bank is not able to transfer the fund that’s why cheque during the cheque clearing process, the bank decides to bounce the cheque with this indicated reason insufficient funds.
What is the meaning of Insufficient funds?
Insufficient funds means a balance less than required in the bank account to pay your liabilities such as cheque payment.
So it is also a cheque return reason in the provided list of cheque bounce reasons in the banking terms. The bank uses this word when the payee presents the cheque in the bank for clearing and the bank check that there is no fund in the account of the cheque drawer during the cheque clearing process.
Then the bank returns the presented cheque to the payee by courier or shows a debit and credit entry in the bank statement with the reason “01 Insufficient funds”. And you can understand what is the reputation of the drawer cause his bank account has not sufficient balance.
If the cheque gets bounced again and again then it affects the reputation of the drawer and the payee also very badly. Funding is not only the issue but it always is the biggest one than others.
What is the meaning of insufficient funds in Hindi?
अपर्याप्त फंड (Insufficient funds) चेक बाउंस का निर्दिष्ट कारण है जो हमें बताता है कि चेक ड्रॉअर के बैंक खाते में कोई पर्याप्त फंड नहीं है और बैंक फंड को स्थानांतरित करने में सक्षम नहीं है, इसीलिए चेक क्लियरिंग प्रक्रिया के दौरान बैंक चेक बाउंस करने का फैसला करता है इस संकेतित कारण के साथ ‘अपर्याप्त धन’
Why cheque gets bounce cause of insufficient funds?
Insufficient funds are the result of a lack of capital deposited in an account. In some cases, funds deposited in an account may not be fully settled causing a lower-than-estimated balance.
Insufficient funds is an issue that arises when an account holder seeks to make a purchase or clear a check that their account cannot cover with the funds available. Insufficient funds may lead to penalties that are triggered by payment processing networks when they seek to obtain funds from a cardholder’s issuing BANK.
What are the possible reasons behind cheque bounce or return?
There is a list of possible reasons are available a cheque can return or bounce just click below to see the list
- Exceeds arrangement meaning for cheque bounce
- EXCEEDS ARRANGEMENT (2)- REASON OF CHEQUE RETURN
- EFFECTS NOT CLEARED; PRESENT AGAIN (3)- REASON OF CHEQUE RETURN
- CHEQUE RETURN REASONS LIST IN BANKING
- Refer to Drawer (04-09) cheque return reasons
- Bankers cheque-One thing you should know
What are Insufficient funds examples?
You can understand the cheque bounce reason (insufficient funds) with the help of an example-
A (drawer) issued a cheque of 20000 Rs in favor of B (drawee) for a date of 31.03.2023. A presents that cheque in the bank to get clearance but after presenting that cheque he gets that cheque clear in the bank statement in the morning and in the evening cheque bounces with a reason (funds insufficient). In this case, B will see two entries of credit and debit of 20000 Rs in his bank account statement.
Why do banks charge for insufficient funds?
There are some reasons behind the bank charges-
- Sometimes, the funds deposited in an account may not be fully settled, causing a lower-than-estimated balance.
- When the bank provides the overdraft facility to the drawer but the drawer decline to pay due to insufficient fund then the bank charges apply.
- The bank charges for insufficient funds to encourage customers to maintain good credit habits and should only issue cheques when they have funds in the Account.
- And further, they have to answer and may have to service the client of other banks’ desires in order to start a lawsuit against you.
- Banks want good clean customers, not people who become headaches and bring a bad name to the bank.
- The banks spend money to provide services to their customers.
- If you are not using their services then you are a burden on the banks.
- They are not here to do charity work. Sure, they are backed by the government but at the end of the day, they have to make profits.
- This is the penalty to stop this next time.
- Charges for issuing a cheque, after all, there is no balance in the account.
How do I fix insufficient funds?
In this case, we should think that we want to receive our money from the debtor (drawer) but not possible due to the reason of insufficient funds.
So we need to do this before presenting that cheque to the bank:
- First, Take a penalty from the drawer of about 500 per cheque cause your goodwill will harm by this and the bank will also charge you.
- Second, Tell the drawer to deposit sufficient funds in his bank account.
- Third, You can present that cheque in the bank up to 3 times so make sure should have funds.
- Fourth, If 3 times you get a cheque bounce with a reason(fund insufficient) then you should not try to deal again with that customer cause he is harmful to your goodwill.
- Fifth, Present the cheque in the bank again after confirming from the customer about the fund’s sufficiency.
- Sixth, Present a cheque within the validity period of that cheque. Usually, a cheque will be valid for up to 3 months from the date of the cheque.
A cheque can be cleared In an Insufficient fund situation?
No, the banks will not clear the cheque in the situation of an insufficient fund in the account holder but it is possible when the account holder has an overdraft facility. Then the bank can clear a presented cheque whether the drawer account has insufficient funds. After asking the drawer, Bank will clear the cheque because the account holder has an overdraft facility.
If there is no overdraft facility then the presented cheque will not clear and will get bounced for the reason of ‘Insufficient funds.
What happens if you have insufficient funds?
If the account holder does not contain sufficient funds to cover the payment of a cheque, any overdraft protection you may have on the account will be used. If you still do not have enough funds to cover the payment(s), you will be charged a fee for insufficient funds.
An Accountant, GSTP, GST blogger, Website Creator, SEO Builder & Co-founder of the website https://gstportalindia.in for the help of GST Taxpayers of India. Having a perfect accounting experience of more than 10 years in a Private Ltd Company.