Post-Dated Cheques in the UAE: The Pros and Cons 2020/3/12 下午10:21

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Post-Dated Cheques in the UAE: The Pros

and Cons
Post-dated cheques are a common form of payment in the UAE, whether you’re
buying a car, paying rent or your B2B supplier; post-dated cheques are frequently
used. A rise in using cheques for payments has occurred due to the high fees on
electronic transfers. However, within the UAE there are serious factors that need to

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Post-Dated Cheques in the UAE: The Pros and Cons 2020/3/12 下午10:21

be considered when using cheques as payment. If a cheque bounces it is treated as a

criminal offence with the potential of jail time, hefty fines and an overall risk to your
credit score. Thus, it is pivotal to comprehend the pros and cons of using cheques,
and, especially, when writing post-dated cheques.

Know Your Customer or Else – The Pros and Cons

Post-dated cheques can be your best friend or your worst enemy. A potential benefit
of this payment method is how it can foster healthy and long-lasting business
relationships. When you are able to rely on a supplier and it is possible to pay with
post-dated cheques, with full confidence that the transaction will be honoured, you
can assure a robust financial future. Furthermore, your B2B relationship will
inevitably strengthen with frequent transactions via cheques, if and only if, they are
honoured. Small and Medium-sized Enterprises (SMEs) often rely on post-dated
cheques, thus for a sturdy cash-flow, it is essential that cheques do not bounce. The
magnitude of payments via cheques in the UAE is outstanding, there were
approximately 12 million cheques in circulation in the first half of 2018, with an
estimate of 4% of those that bounced.

Before entering into an agreement where post-dated cheques are used it would be
beneficial to know your customer well in order to avoid any financial malice. It is
important to understand the penalties of a bounced cheque, especially due to the
fact that the charges differ from between emirates within the UAE. For example, in
Dubai you would expect a fine from around AED 2,000 – AED 10,000. However, due
to it being a criminal offence, penalisation of bounced cheques may result in a
criminal sentence and, at minimum, detainment along with a fine. Additionally, some
courts may even impose travel bans as a penalty on bounced cheques.

Therefore, post-dated cheques have many drawbacks and may be simply outdated.
There are no guarantees of a cheque being honoured therefore, especially in cases of
large sums, it would be highly advantageous if a due diligence investigation were to
be conducted on the issuing party. An investigation of such could assess the risks of
B2B arrangements and allow you to mitigate any potential risks before entering an
agreement. Moreover, a cheque is only valid for 3 months from the date of issuance;
this understanding creates tight timeframes upon payments. Post-dated cheques
hold an array of problems that may distort the future of your business. “You must

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Post-Dated Cheques in the UAE: The Pros and Cons 2020/3/12 下午10:21

do your homework and know the other person’s financial situation, if he

is good for it or not.” This quote is extracted from a case where a post-dated
cheque was misused (full article). The example concentrates on conducting B2C
research, which is necessary prior to an agreement. However, it is directly applied in
the same manner and perhaps, more importantly, in the case of B2B transactions,
due to the fact that they usually involve larger sums with a greater risk potential.

“Do Your Homework”

This quote nicely depicts what course of action should be taken before entering a
business transaction, especially in the case of post-dated cheques being issued.
Cedar Rose offers professional and meticulous investigative due diligence reports
which can assist in avoiding financial burdens and untrustworthy counterparties. Our
specialised due diligence team can research the company of your choice and make
sure that their reputation is robust enough for a healthy transaction. No matter the
transaction, big or small, it is important to make sure that your arrangement is pre-
emptively as secure as possible. Cedar Rose can provide multiple specific reports
tailored to your needs. For example, a reputational due diligence report involves
extensive discreetly conducted research to ascertain the local reputation of a
company. This assessment may be the ultimate difference in assuring that payments
via post-dated cheques are likely to be fruitfully honoured or knowing that the
business or person is locally considered untrustworthy or dishonourable. Post-dated
cheques are not the enemy, but the potential risks are, therefore, do your homework
and mitigate them with Cedar Rose.

Stay with us for more exciting and informative articles. Just visit our newsroom here.

Written By Jack Evangelides, Marketing Intern

Sourced Image: Pixabay

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute

legal advice. ***

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Post-Dated Cheques in the UAE: The Pros and Cons 2020/3/12 下午10:21

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