Stop Payment

Definition

A stop payment is a formal request made by the account holder to their bank to cancel a check or a series of checks. This action effectively prevents the bank from processing the payment stated in the check. The request can only be made if the check has not yet been cashed or processed.

Key Points:

1. Timing: The issuer of the check has up to six months from the check issue date to request a stop payment, given that the check has not been honored.
2. Applicability: This right is applicable only to paper checks and does not extend to electronic funds transfers.
3. Procedure: To initiate a stop payment, the account holder must provide the bank with specific details about the check including the check number, date, amount, and the payee.

Examples

1. Business Scenario: A company issues a check to a supplier for payment. Shortly after issuing the check, the company realizes there was a significant error in the billing amount. The company can request a stop payment to prevent the check from being processed and issue a correct payment.

2. Personal Scenario: An individual writes a check for a purchase but soon after decides to cancel the purchase. They can request a stop payment from their bank to revoke the transactional check, provided it hasn’t been cashed by the vendor yet.

Frequently Asked Questions (FAQs)

1. How can I request a stop payment?

You can request a stop payment by contacting your bank directly. This can often be done via telephone, online banking, or in person at a bank branch. You will need to provide details such as the check number, amount, date, and payee information.

2. Is there a fee for processing a stop payment?

Yes, banks typically charge a fee for processing a stop payment request. The fee can vary by bank and account type.

3. What if the check has already been cashed?

If the check has already been cashed or processed by the bank, the stop payment request cannot be honored.

4. Can I stop payment on an electronic funds transfer?

No, the stop payment right does not extend to electronic funds transfers (EFTs). EFT transactions may have different rules and timeframes for disputing or canceling a payment.

5. How long is a stop payment request valid?

A stop payment request is usually valid for six months from the date of issue. Some banks may allow renewals for an additional fee.

Related Terms

Check

A check is a document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the check has been issued.

Electronic Funds Transfer (EFT)

EFT refers to the transfer of funds from one bank account to another electronically without the direct intervention of bank staff.

Deposit Account

A deposit account is a bank account maintained by a customer at a financial institution, which allows for the deposit and withdrawal of funds.

Online Resources

1. Investopedia - Stop Payment
2. Bankrate - How to Stop Payment on a Check
3. Consumer Financial Protection Bureau - Stopping Payment

Suggested Books for Further Studies

1. “The Essentials of Finance and Accounting for Nonfinancial Managers” by Edward Fields
2. “Banking Law and Regulation” by Jonathan R. Macey and Geoffrey P. Miller
3. “Principles of Financial Regulation” by John Armour, Dan Awrey, and Paul Davies

Fundamentals of Stop Payment: Banking Basics Quiz

Thank you for exploring the intricate details of stop payments and challenging yourself with our quiz. Keep enhancing your banking knowledge!