"Backing" a cheque: A nifty practice for ensuring payment

The steady decline in the use of cheques over the past decade appears to signify that the end is nigh for this established banking practice. And whilst your chequebook wont be redundant just yet, the Australian Paper Clearing Association (APCA) predicts the use of cheques is likely to be phased out by 2018.

This regression is yet another example of an industry shaken-up by the shift to online and electronic transactions, and has also exposed the generation rift between those who use cheques in every day life. Whilst the use of cheques amongst younger people is widely regarded to be inefficient and out-dated, with many never having encountered a cheque or owned a chequebook, older generations remain more attached to the practice. The APCA has estimated that this latter group, combined with people living in rural and regional areas and certain businesses, constitute roughly the 5% of the population who still favour the use of cheques today.

In addition to these demographics, certain industries also remain reliant on the use of cheques. Cheques continue to be used in high value business transactions, and the real estate industry consistently uses cheques in property settlements.

Despite this, statistics show that the cheque had its heyday in the mid 1990s, when approximately 3.9 million cheques were used per business day in Australia. In comparison, there has been a marked 70% drop in the use of cheques over the past decade, and today only 600,000 cheques are used daily.

APCA CEO Chris Hamilton has endorsed the shift to electronic and online transactions, stating "If you still rely on your cheque book, I encourage you to look at the alternatives that are already widely available, cheap, and reliable."

Notwithstanding the above, if you are receiving payment by cheque, a nifty practice is to ensure the cheque is "backed", that is, having the back of a cheque signed by a natural person who is not the drawer or the endorser. The general effect of this, which is provided for in section 75 of the Cheques Act 1986 (Cth), is that a person who signs a cheque in this way will become liable as if they were the endorser of the cheque and their signature was an endorsement.

So in the event that you are required to receive payment by an ordinary cheque in the course of business, having a cheque "backed" will provide greater protection and increase the probability of payment in the event the cheque ultimately bounces.