On day 1, collect the signed return memo from your bank, mark the invoice as unpaid again, and speak to the customer the same day. If you may want to take legal action later, a written demand notice must go out within 30 days of hearing from the bank; the customer then has 15 days to pay.
Most bounced cheques end with the money coming in after a calm, quick follow-up. The plan below keeps the relationship and your legal rights both intact.
This is a plain guide for business owners, not legal advice. For a notice or a court case, speak to a lawyer.
The dates that matter
Under section 138 of the Negotiable Instruments Act, 1881, a bounced cheque can become a criminal case only if these steps are followed in time:
| Step | Time limit |
|---|---|
| Cheque presented to the bank | Within its validity: three months from the cheque date |
| Your written demand notice to the drawer | Within 30 days of receiving the bank’s information that it bounced |
| Drawer pays | Within 15 days of receiving your notice |
| Your complaint to the court, if not paid | Within one month after those 15 days end (section 142) |
The three-month validity comes from the RBI’s 2011 notification, in force since 1 April 2012. Write the date you got the return memo in your diary today. Every other date depends on it.
Day 1: Get the facts
Collect the return memo. Your bank returns the cheque with a memo giving the reason. The RBI has told banks that return memos must be signed or initialled and give a valid reason. Keep the memo and the cheque (or its image) safely. You will need them as proof.
Read the reason. It decides your next move.
| Reason on the memo | What it usually means |
|---|---|
| Funds insufficient / exceeds arrangement | The customer did not have the money that day |
| Payment stopped by drawer | The customer told the bank not to pay. Find out why |
| Signature differs / incomplete | A paperwork problem; often fixed with a fresh cheque |
| Date, amount or words differ | A writing mistake; ask for a fresh cheque |
| Account closed | A serious warning sign |
Fix your books. The receipt you entered is no longer real. Reverse it, so the invoice shows as due again. Add any bank charges for the return to what the customer owes, if your terms allow it. Do not cancel the invoice: the sale still stands, only the payment failed.
Call the customer. Keep it calm and factual: “Your cheque number 004512 for Rs 2,36,000 came back today, reason ‘funds insufficient’. How would you like to settle it?” Most customers are embarrassed and will offer a date or a transfer.
Day 2: Agree the way forward
You have three choices:
- Re-present the cheque on a date the customer gives you, if it is still within three months of its date.
- Ask for a bank transfer or UPI for the full amount. This is the fastest and cleanest.
- Take a fresh cheque if the problem was a signature, date or writing mistake.
If the customer asks for time, agree a specific date, not “next week”.
Day 3: Put it in writing
Send a short WhatsApp and e-mail the same day as the agreement:
As discussed, cheque 004512 for Rs 2,36,000 (invoice INV/26-27/0388) was returned on 14 October, reason funds insufficient. You will transfer the full amount by 21 October. Thank you.
This is not the legal notice. It is a written record of what was agreed, which helps whatever happens next.
Day 4: Check your other dealings with this customer
- Are there more post-dated cheques from them waiting to be deposited? Note their dates and amounts.
- Are there open orders? Decide, as a business, whether to dispatch further goods on credit before this is cleared.
- How much does this customer owe you in total, including invoices not yet due?
Day 5: Decide on the legal notice
If the customer is not answering, or the account is closed, or the payment was stopped without a good reason, talk to your lawyer now about the demand notice under section 138. You have 30 days from the day you received the bank’s information, but there is no benefit in waiting till the last week. Give the lawyer the cheque, the return memo, the invoice and your messages.
If the customer has agreed a near date and has a good record with you, you may choose to wait for that date. Just keep counting the 30 days.
Day 6: Follow up on the promise
If a payment date was agreed, send a polite reminder the day before it. If a re-presentation is planned, confirm with the customer that the money is in the account before you deposit. A second bounce on the same cheque helps nobody.
Day 7: Review and set the next date
By now one of three things has happened:
- Paid: record the receipt against the invoice and close the matter.
- A firm date is agreed: set the next follow-up for that date and note it against the invoice.
- No answer or no money: the notice goes out through your lawyer, well within the 30 days.
Whatever the outcome, write down what happened and when. If this customer pays by cheque again, you will want that history.
Checklist
- Return memo and cheque collected and kept safely
- Date of the bank’s information written down; the 30-day notice deadline worked out
- Receipt reversed in your books; the invoice is due again
- Customer called the same day, calmly, with the facts
- Agreement confirmed by WhatsApp and e-mail
- Other post-dated cheques and open orders from the customer checked
- Lawyer consulted in time if the payment is still not agreed
- Re-presentation done only within three months of the cheque date
Bounced cheques in SmartWorker
In SmartWorker, a bounced cheque makes the invoice due again, so reminders and follow-ups start once more. Post-dated cheques count as paid on the cheque date, and every call, promise and reply is kept in history. Book a free demo to see it.