How to handle bounced cheques in accounting in the UAE: entries and controls

You deposit a customer cheque for AED 42,000. The bank credits it, often provisionally, and a few days later returns it unpaid with a reason, usually insufficient funds, a signature mismatch or a stopped payment. The bank statement then shows the original credit, a debit for the returned cheque, and usually a separate returned-cheque fee.

If you recorded the receipt when you deposited the cheque, your books now show a paid invoice and more cash than the bank holds. That is why the return must be posted the day you learn of it, not at month-end reconciliation.

Original receipt: debit bank AED 42,000; credit accounts receivable AED 42,000. The invoice is marked paid. On return: debit accounts receivable AED 42,000; credit bank AED 42,000. The invoice reopens with its original due date, so the ageing shows how late it really is.

Bank fee: debit bank charges; credit bank. If your bank charges VAT on the fee and provides a tax invoice, the VAT may be recoverable input tax, because explicit bank fees are generally taxable under Article 42 of the VAT Executive Regulation. If your contract lets you recover the fee from the customer, raise a separate invoice or debit note for it.

• Reverse the receipt against the same invoice, not as a new charge
• Record the bank fee separately from the cheque amount
• Attach the bank’s return advice to the reversal
• Note the return reason on the customer record

A bounced cheque does not change the VAT you owe on the original sale. Output VAT was due on the date of supply, which under Article 25 of the VAT Decree-Law is the earliest of events such as invoice issue or payment. Non-payment does not undo the supply.

If the debt later proves irrecoverable, VAT bad debt relief may be available once more than six months have passed since the date of supply, the debt has been written off in your accounts, and you have notified the customer, as Article 64 and the FTA’s clarification VATP024 describe. Keep the bounced cheque and the bank advice: they are evidence of your recovery efforts.

Call the customer the same day. Many bounces are genuine mistakes: a signature that does not match the bank’s record, or a cheque presented a day before funds were moved. Ask for a bank transfer rather than a replacement cheque. Put further deliveries on hold until the amount is cleared.

If the customer is unresponsive, the legal route for recovering the amount of a returned cheque is set by the UAE’s commercial transactions legislation and has changed in recent years. Speak to a lawyer before taking formal action, and keep the original cheque and the bank’s return slip safe; you will need them.

Keep a cheque register: customer, cheque number, bank, amount, cheque date, deposit date, status. Reconcile it weekly against the bank. Our view: any customer with two bounced cheques in twelve months should move to bank transfer or advance payment, whatever their size.

When you upload a statement to HelloBooks, the AI agent spots returned-cheque lines and the related fee, matches the return to the original receipt, and proposes the reversal so the invoice reopens. It also puts a note on the customer record. You approve the entries, and you decide whether to put the account on hold. Ask “which customers had a returned cheque this year?” and the agent lists them with amounts and dates.