Types Of Cheques

What is a cheque?

Cheques are common forms of negotiable instruments. If you have a savings bank account or a current account at a bank, you can issue a cheque in your name or in favour of other people like a client, thereby directing the bank to pay a specific amount to the persons named in the cheque.

A cheque is a financial instrument issued by the bank to an account holder to make certain payments to an individual or company.  A customer can use a cheque instead of hard cash to make payments. It is a trusted form of making payments, as only the recipient named is able to withdraw money by encashing the cheque at the bank, provided he/she proves their identity.

At the bottom of the cheque there is some information in the MICR format. This is a machine readable information system that is encrypted and enables automated routing and sorting of cheques and automated clearing facilities. The payee can deposit the cheque at their own bank branch or some other bank from where it would be routed back to the originating bank and enable the transfer of funds to the account that is mentioned in the cheque.

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Types Of Cheques

Technology has revolutionized the process of handling cash. Cheque is one such instrument that gives you the power to make payments and clear dues, without having to carry cash around. Cheques typically have a routing number identifying the financial institution where funds are held and an account number identifying the customer's account at that institution, thereby ensuring proper money transfer.

  A transaction made through cheques, have three parties involved.

• A payee, in whose favor the cheque is drawn
• A drawee (the bank) on whom the cheque is drawn
• A drawer who draws the cheque.

Any individual, who has a saving bank account or current account at a bank, is eligible to issue a cheque. A cheque is a traditional payment method that employs the use of paper documents to make a payment transaction. The cheque issued is in favor of another person/institution, thereby directing the bank to pay the specified amount to the person named in the cheque. A cheque must be in writing. It must be written, typed or printed.

Bearer Cheque:

When the words “or bearer” printed on the cheque are not cancelled, the cheque is called a bearer cheque. A bearer cheque is payable to the bearer which means, it is payable to the person who presents it at the bank for encashment. However, such cheques are risky as if they are lost, the person who finds the cheque can collect payment from the bank. Bearer cheques can be transferred by mere delivery; and need no endorsement. In simple words, a cheque which is payable to any person who presents it for payment at the bank counter is called a ‘Bearer cheque’.

Order Cheque:

When the word “or bearer” printed on the cheque is cancelled and the word ‘order’ is written on the cheque, the cheque is called an order cheque. An order cheque is payable only to a particular person. The payee can transfer an order cheque to someone else by signing his or her name at the back of it.

Uncrossed/Open Cheque:

When a cheque is not crossed, it is called an “Open Cheque” or an “Uncrossed Cheque”. These cheques may be encashed at any bank and the payment of these cheques can be obtained at the counter of the bank or transferred to the bank account of the bearer. An open cheque may be a bearer cheque or an order cheque.

Crossed Cheque:

Crossing of cheque means drawing two parallel lines on the left corner of the cheque with or without additional words like “Account Payee Only” or “Not Negotiable”. A crossed cheque cannot be encashed at the cash counter of a bank, but it can only be credited to the payee’s account. This is a safer way of transferring money then an Uncrossed or open cheque.

SEE ALSO: Features of cheque

Post-Dated Cheque:

Cheque on which the drawer (a person who writes the cheque) mentions a date which is yet to come (future date) rather than the date on which the cheque is presented, then such a cheque is called a post-dated cheque. For example, if a cheque is presented on 10^th January 2010 and bears a date 25^th Jan 2010, then such a cheque is called a post-dated cheque. The bank will make payments only on or after the 25^th January 2010.

Stale Cheque:

If a cheque is presented for payment after six months from the date of the cheque, it is called a stale cheque. After expiry of that period, no payment will be made by banks against that cheque.

Mutilated Cheque:

When a cheque is torn into two or more pieces and presented for payment, such a cheque is called a mutilated cheque. The bank will not make payment against such a cheque without getting confirmation from the person who has written the cheque.

Ante Dated Cheque:

Ante means prior. Antedated cheque means the date mentioned on the cheque is earlier than the actual date of withdrawing the money. An antedated cheque is a regular cheque that can be encashed without delay. So any cheque can be presented to the bank for clearance, however the date should not exceed 3 months. Ante-dated cheques can be used when the contract is delayed, to avoid unnecessary trouble to a party.

How to write a cheque?

Writing a cheque is simple and easy. But sometimes, people make careless mistakes while writing a cheque, that can result in fraud or the cheque being misused or dishonored. The process becomes natural with successive writing. For first timers, here’s a guide on how to write a cheque:

1. Write the date: mention the date on the top right corner next to a box or line that says ‘date’. There is a specified space for you to write the date. Always write the same date that you signed the cheque on.

1. Write the recipient: write the name of the recipient on the line that contains ‘pay’ written before it. Try not to leave any spaces between ‘pay’ and the name of the recipient. This will reduce chances of misuse of the cheque, by adding alphabets before or after the name. Always strike out spaces after writing the name and start as close as possible to the words ‘PAY’ and leave just the bare minimum spacing in-between names.
2. Write the amount: write the amount that must be paid to the recipient from your account. Write the amount in words as well as in numbers, in the respective spaces provided. Always write ‘only’ after the amount written in words and use the symbol ‘/- ‘after writing the amount in numbers. If you do not follow the above and leave additional space between amounts and ‘only’ or /- then amounts can be easily altered by fraudsters and additional letters and numbers can be entered. Also strike out the empty space left.
3. Sign the cheque: At the bottom right corner there a space for you to sign the cheque. The signature is a must as the name of the account holder proves that the cheque is valid. Do not sign on the MICR band as it may lead to your cheque getting dishonored.
4. Fill the memo section: The cheque book usually comes with a section for all this information at the back. Fill in the details and keep it handy to cross-check any suspicious activity, future records, or a possible fraud.

Importance of cheques:

There are a number of reasons why the offline method of cheque payment is still widely used. The main advantages of using cheques are listed below:

1. Cheque can only be encashed by the recipient of the cheque at a financial institution.
2. This is a traditional method of payment that has been around for a long time. People trust this method over online payments, mobile wallets and other digital services.
3. The customers can issue a post dated cheque. This allows the customer to buy time to deposit funds into the account. This enables customers pay in advance for goods or services, even if they do not have sufficient funds in their accounts.
4.  Each cheque creates a paper document that details who received the payment, what day the payment was made and so on.
5. Maintains confidentiality of your account and guarantees payment to the payee.

Cheque book request:

Cheque book issuing request can be made through online or offline method.

1. Offline method: The customer can visit the bank and submit a written application, addressing the branch manager along with details of the account.

2. Online method:  to apply online, a customer has to log on to the retail section of the internet banking site and select the cheque book option. The customer needs to select the account, on which the cheque book will be issued, enter the number of cheque leaves required and the mode of delivery.

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