How Post-dated Checks Work on Paper: A Close Look at the Process
A post-dated check is a check that is planned to be paid on a specific date, and the payment date is set after the date the check is issued. Post-dated checks serve as an important financial instrument that helps establish a trust relationship between the debtor and the creditor, contributing to the growth of trade and economy. In some countries, such as Turkey, India nearly half of economies runs with post-dated checks. Post-dated checks are actually peer-to-peer credit creation and circulation instruments working directly in real economies.
Introduction:
Post-dated checks are a widely used financial instrument in countries like Turkey. In this blog post, we will delve into how post-dated checks work on paper and their endorsement process.
What is a Post-dated Check?
A post-dated check is a check that is planned to be paid on a specific date, and the payment date is set after the date the check is issued. Post-dated checks serve as an important financial instrument that helps establish a trust relationship between the debtor and the creditor, contributing to the growth of trade and economy.
Post-dated Checks: The Unconventional Credit Creators and Circulators
Post-dated checks serve as credit creation and circulation instruments because they allow the issuer to obtain goods or services without immediate payment. Instead, the payment is deferred to a future date specified on the check, effectively creating a short-term credit arrangement between the issuer and the recipient. As these checks can be endorsed and transferred between parties, they facilitate the circulation of credit throughout the economy. The trust between the involved parties, along with the legal framework surrounding post-dated checks, enables them to function as a widely accepted form of credit in business transactions.
How Do Post-dated Checks Work?
An individual who wishes to issue a post-dated check (the issuer) writes a check to the creditor (the person accepting the check) to make a payment on a specified date in the future. The payment date must be set after the date the check is issued, and the issuer promises to make the payment on that date.
The Endorsement Process and Transfer:
In Turkey, post-dated checks can be endorsed and transferred between multiple parties, and during this process, there can be more than one endorser signing the back of the check. This provides a significant advantage for creditors who wish to cash the check's value or use it for another good or service.
If there isn't enough space on the back of the check for signatures, a blank piece of paper can be attached to the back of the check to continue the endorsement process.
Risks Associated with Post-dated Checks:
The use of post-dated checks comes with some risks, particularly in the case of bounced checks. If the issuer of the check doesn't have enough funds in their account when the check's due date arrives, the creditor cannot receive the money, and the check bounces. This situation can have legal consequences for both the issuer and the endorser.
Conclusion:
Post-dated checks are a traditional financial instrument that plays a significant role in the Turkish economy and helps establish a trust relationship between the debtor and the creditor. The endorsement process allows post-dated checks to contribute to the growth of trade and economy. However, the use of post-dated checks also carries some risks, such as the risk of bounced checks.