If you have never lived in the UAE before, you may well know nothing about use of cheques in the country. But even if you lived in the UAE and used bank cheques before, you may not know everything you should know. Either way, we suggest you do not skip this chapter and learn more about the cheques.
First of all, bank cheque is a mean of payment, as, for example, your debit card or cash, but with that difference that it is not an instant payment. If you receive cash from me, you have the funds available right away. With cheque it is different. Before I receive funds in the amount specified on the cheque, I first need to deposit this cheque in my bank account and wait a day or two, till the cheque clears and the amount gets deposited into my bank account. Cheque payments are very much in use in the UAE and are frequently issued by businesses for payment of services or goods, for payment of office rent or for purchase of office equipment.
When you open your corporate account, you are usually asked, whether you wish to order a cheque book along with your debit or credit card. First cheque book usually comes for free and contains between 50 to 100 leafs or cheques. All future cheque books come at a certain charge, which is different with each bank. Each leaf in the cheque book or a cheque contains several lines and boxes for you to write the following: first and foremost, the name of the party you are paying to. This name should be written exactly in the same manner, as it is mentioned in the bank. Any differences in spelling will cause return of the cheque by the bank. Then you specify the amount in words and next to this you state the amount in figures. Again, if any discrepancies are found and the amount in figures differs from the amount stated in words, cheque will be returned. In the right bottom corner there is always a space for signature. Signature that you need to use on the cheque, should be the same as how you signed, when applying for your corporate bank account opening. We noticed that quite often businessmen have very sophisticated signatures that always look different, each time they sign. To avoid any complications with operating your bank account, we suggest that you create a signature that you can easily replicate. If you know that with your old signature you will not be able to repeat all those curves and moves precisely, ask your banker for a special banking form for adopting an alternative signature and do not forget this signature. Again, if you sign your cheque differently from what you declared at the bank, the cheque will be returned with a comment “signature mismatch”.
Finally, once you filled out the payee’s name, paid amount and signed the cheque, you need to date it. Here you have an option, either to put today’s date, then we will call this cheque current-dated. It means, as soon as you hold the cheque in hand, you can go and immediately deposit it into your bank account. Or you can state any future date, then we will call the cheque post-dated, meaning that you will be able to go to the bank and deposit the check not sooner than the date on the cheque. Current dated cheques are used to pay for goods and services now, and post-dated cheques serve as a certain guarantee, that you will have a payment of that amount on this future date. Post-dated cheques are very often used to pay for office rent, for example, when you issue the first cheque for the first three months of rent as current dated, say January 1, and three post-dated cheques will be for April 1, July 1 and October 1. Again, it means that your landlord will deposit the first cheque immediately and on the next day relevant amount will be deducted from your account. Next time payment will be deducted on April 1, then on July 1 and finally on October 1.
What is very important to know, as a business owner, is as follows: on the one hand, to issue a post-dated cheque in a certain amount, you do not need to have this amount right now. But you must ensure that you have it, before the person or entity you gave it to, presents it to his bank. If by that time you do not have enough funds, cheque is returned by the bank with a note “not sufficient funds” and the cheques, which did not clear is a criminal offence. This means that if the person you gave the cheque to presented the cheque to his bank and there were no sufficient funds, so this person did not receive the payment, payee can approach Police in the UAE. As such, you need to be very cautious and treat cheque matters very seriously.
As we were enumerating the details you need to mention on the cheque, we simultaneously mentioned the reasons for cheque return: incorrect payee’s name, mismatch in amounts, incorrect signature, insufficient funds. What is also important to know here, is that if you, as a business, issue a cheque as a payment to someone, and the cheque is returned because of one of the reasons mentioned, your bank will charge you a respective fee for cheque processing. Bank charges with different banks vary.
At the time of corporate account opening you will also agree with the bank, how many signatories for the account you will have and whether they will be authorized to act singly or jointly. What does it have to do with the cheques? On each cheque, when you want to give it to someone as payment, you have a space for signature. If you have two partners, who act jointly, it means both of them need to sign the cheque. If, however, both have authority to act singly, one signature on the cheque would be sufficient.
If you received a cheque as a payment, you need to deposit it into your bank account. You can do it in different ways: you can either use special ATM machine which provides cheque deposit service or you can visit a branch and hand over the cheque over the counter. The first option is always more convenient.
You will also hear oftentimes such term as a cash cheque. This is a standard cheque that we just discussed, where instead of payee’s name it is written “CASH”. For example, you have a limit on your corporate debit card of AED 10,000 and you urgently need to buy some office equipment worth AED 15,600. The ATM will not allow you to withdraw this money and to submit instructions to the bank to pay cash would take time. Instead, you can write “cash” in the payee name field, fill out the rest of the cheque as usual, and present it at your bank. The bank will immediately deduct this amount from your account and pay you AED 15,600 in cash. At the same time, we have noticed that certain banks started implementing policies according to which they shall stop accepting such cheques from a certain date. However, still many banks continue to offer the service. We urge you to use the service wisely and when really necessary.
Now that we talked about current-dated cheques, post-dated cheques, cash cheques, it is high time to introduce you to manager’s cheques. As opposed to a standard cheque (be it a current-dated or a post-dated one), manager’s cheque is an equivalent of cash. How is it possible, you may ask? Remember, when we said before, that to issue a standard, for example, post-dated cheque, you do not require to have funds right now, but you need to have them by the time the cheque shall be deposited? With the manager’s cheque it is different: if I want to issue a manager’s cheque, I come to my bank, fill out a request form, the bank right away debits my account for the amount needed and in exchange issues me a cheque in the name of the party I specify. Then if I give such cheque to someone as payment, you can be sure that you have your money no matter what. Manager’s cheques are common when you buy properties, for example, when you need to transfer the ownership title and simultaneously receive payment for the property you just sold. Manager’s cheque also looks different from standard cheque, as it is always typed and bears signatures of bank representatives and the stamp of the bank.
Now let’s take a very good example of the benefit of manager’s cheque use. Imagine you, as a business owner, want to buy a luxury car to drive your clients. The car costs over AED 300,000 and you buy it from another owner, not from a showroom. You agreed on the price and the day of transfer but to carry AED 300,000 in cash to pay the previous owner is not very convenient. So you decided to issue a cheque in this amount. The day before your transaction accountant in your company did a payment to your supplier and brought the balance of the company to AED 240,000 without you even knowing it. The sale takes place, the card is re-registered under your name, you hand over the cheque, but the next day previous owner receives a message from the bank that you do not have sufficient funds in your account and immediately approaches Police. Further developments you can already image. This is exactly a case, where manager’s cheque is a great tool to guarantee the payment. Should the seller have taken the manager’s cheque instead of the standard one, there would be no situation with insufficient funds.
We are sure you learnt from this chapter, even if you live in the UAE for quite some time. We wanted to make sure that you feel much more comfortable, when you hear next time that someone wants to pay you by cheque. And do not forget to use all available instruments wisely.
If you want to know more about Dubai freezone company formation, feel free to get in touch with our professional consultant team and we would be delighted to assist you and help you to compare Dubai freezone company setup costs and help you to find that free zone, which would suit your business needs the most.
Disclaimer: Business Boutique UAE-Consultants.com is not affiliated with any particular government or legal entity. Business Boutique does not give professional legal advice nor any other professional advice subject to a public office in the government. This article merely sets out a simple and basic idea as to the reasons of Dubai freezone company setup and Dubai free zone company formation cost. Business Boutique in no way holds nor imposes any official governmental or legal authority and the article herein is only to be taken as a guide. All further governmental or legal issues should be addressed to the corresponding authorities.
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