Cheques and Promissory Notes: Recording, Tracking and Bounce Risk

In most Iranian businesses, cheques and promissory notes are the backbone of credit sales, yet they are recorded so loosely that the true receivables position stays opaque. This article covers recording them step by step, trade versus guarantee instruments, and a procedure that reduces bounce risk.

Two instruments, two logics

The point I repeat most often with clients: a cheque is a payment instrument, a note is a security instrument. Used the other way round, both the legal risk and the bookkeeping go wrong.

What the cheque registry changed

Under the reformed cheque legislation, issuing and transferring a cheque is no longer a purely physical act: the issuer registers it in the national system and the recipient confirms it, and onward transfer runs through the same channel. Three practical consequences for finance:

• Physical endorsement alone is not enough. If the transfer was not registered, the holder's ability to enforce is limited.
• Cheque data can be verified before acceptance. You can check the issuer's credit status and bounce history. This should be a fixed step in your acceptance procedure, not an occasional one.
• Matching is easier. Each cheque carries a unique registry identifier that should also be captured in the accounting system.

The entries for a receivable cheque

1. Receipt: debit notes receivable (cheques on hand), credit trade receivables. No revenue arises here — it was recognised at delivery.
2. Lodged for collection: transfer from cheques on hand to cheques in collection.
3. Cleared: debit bank, credit cheques in collection; collection charges go to bank expenses.
4. Bounced: remove from notes receivable to a returned-cheques account or back to the customer's receivable, plus the cost of the non-payment certificate.
5. Endorsed to a third party: debit the supplier's account, credit notes receivable — but your contingent liability as endorser survives and should be disclosed in the notes.
6. Discounted with a bank: the difference between face value and proceeds is a finance cost, not a sales discount. Keeping that split clean matters for gross margin analysis.

Where guarantee instruments belong

This is the most common recording error. A cheque or note received or given as security — performance bonds, loan guarantees, lease deposits — creates neither a receivable nor a payable. Booking it into notes receivable overstates both assets and, eventually, income.

The correct home is memo accounts: a symmetrical pair with a net zero balance sheet effect that still records and reports the commitment. When the obligation ends and the instrument is returned, the entry reverses.

Promissory note technicalities

• Face value must fit the form. Each printed note has a ceiling that corresponds to the stamp duty paid on it. A note written for more than its ceiling is, in practice, only enforceable up to that ceiling.
• Stamp duty on notes and drafts is set in the direct taxation law at half per mille of face value, normally paid when the form is purchased.
• Protest within the statutory window after maturity preserves recourse against endorsers. Missing it discharges the endorsers and effectively voids your security.
• Full details of the obligor and a clearly named payee prevent later ambiguity.

A procedure that reduces bounces

1. Set a written credit limit per customer; credit sales above it need management approval.
2. Check the issuer's bounce history before accepting. It is available to everyone now; skipping it is not defensible.
3. Treat cheques where the account holder is not your customer with extra caution, and always record the transferor.
4. Run a weekly maturity report and remind customers of next week's due dates. A large share of bounces is forgetfulness, not inability to pay.
5. Lodge cheques with the bank before the due date, not on it.
6. On a bounce, obtain the non-payment certificate the same day and file it in the customer's file.
7. Run a monthly ageing of returned cheques and provide accordingly — the method is in managing receivables.
8. Negotiate before litigating. In most files I have handled, a written instalment plan with fresh security outperformed an immediate claim.

Tax angles worth knowing

A cheque proves payment, not the nature of a cost; deductibility still requires an invoice and evidence of delivery. Clearing personal cheques through company accounts, or the reverse, is precisely the pattern flagged in bank transaction reviews. And recognising revenue on cheque clearance breaks the accrual basis and creates differences against VAT and portal filings.

Internal controls over trade paper

• Keep the company chequebook under someone other than the person posting entries.
• Require two signatures on issued cheques and file the stubs.
• Reconcile the schedule of issued cheques and upcoming maturities to your cash forecast weekly — that is the main input to cash flow planning.
• Never discard cancelled cheques; mark them void and file them.
• Physically count cheques on hand against the ledger balance monthly.

Key takeaways

• Cheques settle, notes secure; swapping their roles creates both legal and accounting problems.
• Guarantee instruments belong in memo accounts, never in notes receivable or payable.
• Capture the registry ID, maturity and transferor name — these are what make collection possible after a bounce.
• Receiving a cheque is not revenue; delivery is.
• Issuer checks and a weekly maturity report are the cheapest ways to cut bounce rates.