A cheque that’s dated in future is called a Post Dated Cheque or PDC.

PDC is generally used as an added layer of protection to secure a future payment, whether it be for goods / services or periodic rent payment or loan repayment or whatever. Creditors (e.g. suppliers, landlords, lenders) tend to take PDCs from debtors (e.g. buyers, tenants, borrowers) in these cases. This serves two purposes:

  1. Creditor can simply deposit the PDC when the payment falls due. They don’t have to take the trouble of following up for the payment on the due date.
  2. While all of these transactions are generally covered by a contract, enforcement of contracts is not very strong in many countries. If the debtor fails to make the payment on the committed date in future, suing the debtor to recover the money is an option but it’s a very long drawn out process. If, instead, the creditor has a PDC and the debtor fails to keep enough balance in his bank account to cover the PDC, the PDC will bounce. Cheque Bounce is a separate and criminal offence and it’s generally easier to get law enforcement to go after the debtor.

Interestingly, there’s no Digital Payment equivalent to a PDC. Standing Instruction comes close but SI is set up by debtor on his own bank account and can’t be “given” to the creditor. At most, the creditor can ask the debtor to “show” the SI on the debtor’s Net Banking. After showing it, there’s nothing stopping the debtor from cooly canceling the SI. When the due date comes, creditor won’t receive the money but, unlike a bounced cheque, a canceled SI is not a criminal offence and the creditor is left with nothing to pursue the debtor with.

In my blog post Cheque – The Unsung Hero Of #CashlessIndia, I described the key advantage of PDC:

Rent

Now, take rent payments from tenants.

Once the landlord and tenant sign a leave-and-license agreement for a typical period of 24 months, it’s customary for the landlord to take twelve PDCs (Post Dated Cheques) for a year in advance. While the agreement legally binds the tenant to paying the rent on time, PDCs provide a practical way for the landlord to enforce the tenant’s obligation without having to go to court to enforce the contract. That explains their traditional popularity for this usage scenario.

With the plethora of digital payments available post #CurrencySwitch, it should be easy to find a replacement for cheques for rent payments. Or so I thought when I had a compelling reason to explore PDC-alternatives. (This happened a few months ago when my tenant was due to handover the next batch of PDCs to me and realized that he’d forgotten his cheque book in his home town, which was 500 kms away.)

But I was mistaken.

Some of the options like credit card and debit card were ruled out straight away because I don’t have a merchant account letting me accept a card payment. Others like RTGS, IMPS and UPI were not suitable because they didn’t (still don’t) support scheduling of future-dated payments.

The digital payment that came closest to supporting this use case was NEFT. This A2A EFT method permits the payor to set up Standing Instructions for recurring future-dated payments.

But, when I dug deep, I found two shortcomings with NEFT:

  1. A tenant can set up an SI on their Internet Banking portal but, to show it to the landlord, they need to log into their online banking portal and show the SI screen to the landlord. During the process, other personal information becomes visible to the landlord. Not all tenants might be comfortable with the ensuing loss of privacy.
  2. Tenants who’re not so sensitive to privacy may go ahead but what’s the guarantee that the tenant doesn’t cancel the SIs as soon as the landlord leaves after seeing them?

In contrast, the landlord has the PDCs in their possession. While the cheques can be dishonored on the due date, cheque bouncing is a crime. The threat of fine and / or jail time is a good backstop for tenants to honor their cheques.

So, I’ve still not been able to find a digital payment equivalent of PDC. (Under the circumstances, my tenant made an IMPS payment for the following month and gave me eleven PDCs after he visited his home town and retrieved his cheque book a couple of weeks later.)

And it’s not only in India. James Furlo, Rental Property Owner/Manager in Oregon, USA, explains on Quora why he prefers cheques for rent payments despite the availability of digital payments alternatives like SQUARE, Venmo and Dwolla.