One of the recent debates among ourselves here at London Registrars concerned the tendency of some firms solicitors to still send us cheques in payment of invoices. While these cheques are usually for less than £200, we advise against clients of our services depending on us always accepting cheques as payment.
The reasons for this are several: Firstly, our nearest bank branch has been closed since before the lockdown, and the next branch – over half an hour away in the City – has not reopened yet following the easing of restrictions. To bank a cheque is a costly exercise for us as it takes one of our employees the best part of an hour-and-a-half to bank a cheque.
There is also, however, the very little-known issue of the law surrounding cheques – as detailed below.
Cheques are not legal tender
To understand our policy against the use of cheques as payment where at all possible, it is instructive to look back at how they have always been defined.
Ever since cheques were first introduced, they have not been a promise to pay by the bank, but instead a request to the bank that it pays a certain amount to a third party, out of the funds the customer deposits. The Bills of Exchange Act 1882, for instance, defines a cheque as a written order from an account holder, instructing that their bank pays – on demand – a specified sum of money to one or more named beneficiaries.
As a consequence, a bank will only honour a cheque if the account holder has enough funds to meet it, or if it can be covered by a line of credit such as an agreed overdraft.
At no point in their history have cheques ever been legal tender. This means that if you owe money to someone, they are not obliged to accept a cheque. A creditor has the right to be paid in legal tender, and can refuse any other form of payment.
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