Possible dodgy dealings

[fazza]

If someone who is a sole director of a limited company is writing cheques out from his personal account to pay into his business accounts and these cheques are bouncing, can anyone explain why someone would do this. I suspect that there is a little dodginess about this but i do not really understand why. This only seems to happen when the business accounts have money in them. Is there a good reason why anyone would do this bearing in mind that of course bank charges for cheques not honoured would apply.

 

[KateCB]

No, it seems quite odd; why send a rubber cheque to your own business, which you know is going to be returned costing you fees.....would be interested if you find out the reason for this - very curious!

 

[sarah844]

how do you know this is happening? Has this person told you they are doing this?

 

[Spongebob]

Sounds to me like a director of a company on the brink but who still has sufficient goodwill with his bank that they will pay cheques on uncleared funds.

To avoid his bank bouncing cheques drawn on his business account he is depositing cheques from his private account in order to provide available funds - albeit temporarily.

Within a very short time his bank will wise up and only pay cheques on cleared funds. I suspect that the company will go bust shortly afterwards. If you are owed money get it now!

 

[Maslins]

Is he doing it at particular times, for example just before year end (eg cheque banked 30 Dec, comes back unpaid 3 Jan/whatever)?

Could be that he's trying to boost the bank balance as at the year end to make the company look healthier (so potential future suppliers happier to give credit etc) to those downloading year end accounts.

Or perhaps he has an overdrawn director's loan account that he wants to hide from HMRC, so it looks like he pays it off?

 

[Jaydee]

fazza - if you google "cross-firing", all will be revealed!

 

[fazza]

Cross firing would make sense as are struggling to survive at the moment. As is probably obvious I currently work for him, but am becoming increasingly concerned at some of the things he is doing. Thanks to everyone for their input.

 

[Jaydee]

There is a pretty good explanation here http://en.wikipedia.org/wiki/Check_kiting#Circular_kiting
although they refer to it as circular kiting rather than as cross firing

 

[bovine]

But the OP said the business accounts had money in them and the cheques were bouncing.

Which is the opposite to the cross-firing/kiting thing. In that the cheques clear and are done to create artificial funds?

Is it a case of the bouncing cheque is the end of the cross-fire?

 

[Jaydee]

bovine - in my experience business banks are more likely to offer the ability to pay outgoing items on uncleared effects than personal bank accounts.

So in the OPs employer's case - he is cross firing from personal to business to give his bank comfort to not return items, but when he cross-fires back from business to personal (or perhaps he is simply not bothering with that bit), then his personal bankers are not offering the same facility and they are returning the outgoing cheque, perhaps on uncleared effects or perhaps on insufficient funds.

The OP sees the effect of this when he notices the incoming cheque being returned unpaid.

The business banker in turn, will notice in due course that although the ledger balance is fine, the uncleared balance is worsening and also that the frequency of unpaid incoming effects is increasing. This will put them on notice of the cross-firing and if they are concerned they will change the marker on the business account to be "payment on cleared effects only".

 

[robokoder]

Plenty of info above, no need to repeat (and almost certainly the correct explanation) but I think intuitively you can tell it isn't good news because there's no reason why somebody would do that in the normal course of business.

 

[toddle2u]

It is a practice know as cheque 'kiting'. Google 'finelist kiting' and it will reveal all. Seems should the COmpany go into Liquidation he will be looking at a Directors Disqual

 

[Geoff T]

If I were you OP - I'd be polishing up my CV...

Get out before you're dodgy boss leaves you without that pay you were expecting...

 

[Jaykay]

This may be some type of longforming. If he is trying to sell the business then he may be issuing false invoices and paying them himself thereby showing a higher turnover and higher value of the business. Not really going to work though!