When you submit a check in a foreign currency, the bank may handle it in one of two ways:
Check negotiation Check collection
We will dive into more details about the two methods below.
Check Negotiation
The process of check negotiation permits you the opportunity to utilize the money before the cheque clears. After you pay in the check, the money is normally deposited into your account on the third working day. However, this may take longer. There is a charge, which is determined by the amount of the check. When you turn in the check, your account is credited by the receiver bank, but the issuer bank may decide to take the money back at a later date if anything is incorrect. If this instance occurs, the money is debited from your account.
Check Collection
Unlike the process of check negotiation, check collection ensures that before crediting your account, the receiver bank will wait until the check has cleared and the transaction has been validated by the issuer bank. This process normally takes four to seven weeks. There is also a cost for this, which is determined by the amount of the check.
What about exchange rates?
Because banks determine their conversion rates for foreign currencies, you could find that when your check is cashed, your bank’s rate is less than favourable. Furthermore, because of the time, it takes between presenting the check and its clearing, the exchange rate may have changed in the meanwhile. If your check is paid by collection, the value will be determined by the exchange rate on the day it is cleared, which may be drastically different if several months have passed.
Steps to Cash a Foreign Cheque
Step 1: Check to see if your foreign check is still valid
Checks for personal, business and payroll purposes are valid for six months (180 days). Checks from a few firms are pre-printed with text hinting at a ninety (90) day validity period. The pre-printed text is intended to encourage consumers to deposit sooner rather than later, and most banks will honour the checks for up to 180 days. However, it is better to deposit checks as early as possible before their expiry date to avoid further challenges as banks do not accept invalid checks.
Step 2: Check with your bank to see if accept foreign currency checks.
Several banks do not accept foreign check cashing while some select the foreign checks they process based on the currency in which they are issued. If your bank does not accept your foreign check, you will need to open an account with one that does accept your foreign check cashing. You might also consider reviewing their cashing charges and exchange rates.
Step 3: Mail or bring your check to the bank
You also need to consider if you want to present your check to the bank in person, which might prove less time-consuming than sending it through the postal service.
Step 4: Wait for the deposit process to complete
Depending on where the check is written and what currency it is written in, it will be deposited into your account via a check negotiation or collection service.
In summary
Foreign currency checks are written in a currency other than your home currency. The cheque may be handled in one of two ways by the bank and additional fees and conversion rates may apply for foreign currency transactions, depending on how banks estimate their conversion rates for foreign currencies. Also, the majority of institutions will honour checks for up to 180 days. If the entire process appears lengthy, you should request other means of payment from the proposed issuer of the check before its issuance.
- What is a “foreign currency”?
A foreign currency is any currency other than the currency in your locality.
- What are “Demand drafts”?
Demand drafts are financial statements issued by a bank directing another bank or one of its branches to pay a certain sum of money to a specified party.
- What are Traveller’s checks?
A traveller’s check is a form of currency that can be exchanged for hard currency. They are pre-printed, fixed-amount checks that allow the person signing them to make an unconditional payment to someone else. They can be denominated in one of several major world currencies.
- What is an exchange rate?
The exchange rate refers to the price of a country’s currency about the currency of another currency. For example, the exchange rate of 1 dollar (US) to Pound Sterling is 0.80.
