Paying by cheque in Luxembourg

Checks and their current use

A check is a written document in which a person who has funds in a bank instructs the bank to pay a specified sum to the payee of the check. In principle, checks can be used to settle all types of purchases and pay all types of invoices or contracts, whatever the underlying commercial consideration, however, the reality is somewhat different since the issuer must ensure that the payee accepts payment by check as he is free to refuse it. Something that happens very frequently nowadays.

Between 1990 and the year 2000 checks were widely used in Luxembourg and its neighboring countries, in France it even became the most used means of payment by the French after cash, surpassing bank cards. However, its glory days are over and nowadays fewer and fewer people use it in Luxembourg and in Europe in general, so much so that in 2021, out of 362.1 million payments made in Luxembourg, only 100,000 were by check.

How to issue a check in Luxembourg

In order to issue a check, it is necessary to make sure to include seven elements that must always be present for it to be valid:

• The word “check” must appear inserted in the text of the cheque.
• The name of the paying entity (the bank drawn on).
• The place where payment is to be made.
• The date and place of issue of the check.
• The signature of the person issuing the check.
• The simple authorization to pay a specific amount.
• The amount to be paid, indicated in figures and also written in full.

Additionally, it is possible to endorse a check, a practice that consists of having the check guaranteed by a third party. To do so, on the back of the check, the guarantor must write the words “bon pour aval” (“good for guarantee”), the amount he guarantees, along with his name, date and signature. This practice is, however, becoming less and less common as both companies and individuals prefer to make direct transfers that avoid bad checks and the need for a guarantor on the part of the issuer.

How to cash a check in Luxembourg

When cashing a check in Luxembourg, the first thing to consider is the time limits for cashing the check, which vary depending on the place where the check was issued:

• Checks issued in Luxembourg: 8 days
• Checks issued in a European or Mediterranean country: 20 days
• Checks issued outside Europe and the Mediterranean basin: 70 days.

Once the check is presented for cashing, it should be noted that in Luxembourg, checks are payable on demand, which means that they must be paid on the same day they are presented. Therefore a post-dated check, which is presented for collection before the day indicated as the date of issue, is still payable on the day of presentation.

It is important to understand, however, that the check is not always paid on the same day it is cashed, the payee of the check can be paid in two different ways:

• On collection: under this modality the beneficiary's account is credited on the date the bank receives the payment from the drawee bank and the payment is effective. This usually takes between 2 and 5 working days if the check is in euros and issued in Luxembourg.
• With direct credit subject to collection: under this modality the amount of the check is directly credited to the beneficiary's account, however, the same amount may be deducted in the future if the check is returned or dishonored by the drawee bank.

It should be noted that the cashing of checks issued outside Luxembourg entails additional delays ranging from a couple of weeks to several months. This is due to the additional administrative formalities involved, which may include currency exchange, passing fraud checks or anti-money laundering compliance checks.

In addition, cashing a check issued in another country can be quite costly as banks often charge processing fees for these types of checks. The exact amount will depend on several factors, such as the policies of the bank being used, the currency in which the check is issued and the country of origin.

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Advantages and disadvantages of paying by check

To pay by check is becoming less and less common in Luxembourg and in most of Europe due to the rise of more efficient and secure digital systems. The advantages of checks are decreasing and while there are multiple disadvantages present.

Advantages

• Use in exceptional situations: in cases where wire transfers and card payments are not possible, checks are still a viable option. This may occur in remote locations or where modern technologies are not available, however this is rare in Luxembourg.
• Guarantee of payment: a cashier's check, which is issued directly by a bank, can be offered as a guarantee of payment, as the issuing bank verifies and reserves the funds before issuing the check.

Disadvantages

• Slow processing: cashing a check can take several business days, or even several weeks, in the case of international checks. In the face of the emergence of instant SEPA transfers, checks are at a great disadvantage.
• Risk of dishonor: if the sender of a check does not have sufficient funds in his bank account, the check will be dishonored. In addition, the sender may face rejection fees, which vary from bank to bank.
• Widespread lack of acceptance: In Luxembourg and in Europe in general, the use of checks is in decline. Merchants, businesses and individuals tend to prefer digital methods or cash. The use of bad checks has greatly discouraged their acceptance, and the rise of digital means of payment offers much more advantageous solutions.
• Fraud and security risks: checks are susceptible to counterfeiting, and if they are lost or fall into the wrong hands, there is a risk that they will be used fraudulently.
• Unpractical: carrying checkbooks is much less practical than carrying a bank card or using a cell phone as a means of payment. In addition, writing and completing all the details of a check when making a payment requires much more time than using other payment methods.