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What is Cheque Discounting?

There will always be pressing requirements. One can wake up and satisfy an urgent demand, and the company for which you work can write a check to pay off the debt. However, because a cheque is a piece of paper, it must be cleared before it can be cashed. Nonetheless, as long as you pay a fee, you can take instant cash or exchange the amount stated on the cheque for cash. This is after they do a thorough examination to guarantee that the check is authentic.

Cheque discounting is a practice followed by a number of banking and financial institutions. It allows a consumer to deposit a check or receive cash based on their reputation and comprehensive checks before clearing your check. They do, however, deduct interest or discounted costs from each check.

Requirements

Before cashing a check that has been rendered for clearing, various procedures must be met. These are the requirements:

  • They write checks to trusted and renowned institutions or organizations where the drawer has no previous delinquent checks.
  • The customer who is requesting a discount must have previously received a check from the same drawer.
  • The check's entire amount must be reasonably active for at least six months.
  • Personal, linked entity and foreign currency cheques are not eligible for discounting.

Operation of Cheque Discounting in Uae

The procedure via which the cheque discounting operates is explained below-

  • Due to the fact that the financial institution will receive payment of this cheque on the due date from the client's customer, one must be a creditworthy customer to use the service, and the cheque must be dated within 90 days after the discounted date.
  • Check the cheque thoroughly to avoid bounced cheque. The value of the cheque is promptly credited to the account holder of the cheque by financial institutions.
  • You have the option of drawing a larger cheque. However, you have the choice of having the cheque exchanged for cash with a broker or having the bank ‘purchase' the cheque; the bank branch purchases the cheque according to the bank's policy.
  • The branch or broker may credit up to 75% to 80% of the value of the cheque (depending upon your credit worthiness).
  • The amount credited to your account is after the commission is deducted otherwise the bank regards the transaction as a loan. However, due to the bank's policy, it is subject to a specified rate tariff.
  • Out-of-pocket expenses incurred in the process of collecting the proceeds of the cheque are removed from the money obtained when going via the bank.
  • The remitting bank may additionally deduct its fees for sending the money.
  • When the remittance from the payee bank is received, the outstanding against the cheque purchased is paid off; if the remittance received is less than the amount advanced to you, you must reimburse the outstanding amount as well.
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