A cheque is an important instrument that helps businesses and individuals to make monetary transactions with ease. It is a simple and secure way to carry money. Even though India has found new ways to transfer money (electronic payments and e-wallets) cheques remain a popular instrument among the masses. India still processes about 90 million cheques a month even after the rise of new ways of transactions.
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A cheque is a written order that orders the bank to pay a specific sum of money to the person in whose name the cheque has been issued. Banks issue cheque books to individuals after they open savings/current account with the bank. The cheque book has cheque leaves which can be used to issue a cheque.
However, there are several types of cheques that can be drawn in favour of the person you want to pay. Let’s try to understand the different types of cheques and their features.
A bearer cheque is the one where the words “or bearer” written on the cheque is not cancelled or marked. A bearer means the person who bears or possesses the cheque. Bearer cheque is risky and can be encashed by a person who possesses it. In simple words, any person who presents it to the bank for payment becomes the bearer. Thus there are chances of misuse of such cheques if they are lost as the finder can collect the payment from the bank.
An order cheque is just the opposite of bearer cheque. Here the words “or bearer” written on the cheque is cancelled. These cheques are meant for a particular individual or entity. Thus the cheque is payable to the person specified as the payee. In certain scenarios, the cheque can be encashed by the person to whom the cheque is endorsed by the payee. So the order cheque can be transferred by the payee to someone else by signing his name on the back of the cheque.
See Also: What is a Savings Bank Account?
A cheque can be referred to as crossed cheque when two parallel lines are drawn on the left corner of the cheque with or without additional words like “Account Payee Only” or “Not Negotiable”. Such cheques cannot be encashed at the bank counter. Thus it is a safer way to remit money as it is used to directly credit the bank account of the payee making it a.
As the name suggests, uncrossed cheques are those when it is not crossed by two parallel lines. The payments of these kinds of cheques can be obtained from the bank counter by presenting it at the bank. An open cheque can either be a bearer cheque or an order cheque.
A cheque becomes anti-dated when the drawer mentions the date earlier than the date on which it is presented to the bank. These types of cheques are valid for up to 3 months from the date of issue. Post this the cheques become invalid and cannot be encashed. Therefore, it is important to encash these cheques before they expire.
A cheque can be identified as a post-dated cheque if a cheque bears a date which is yet to come. Such cheques are issued through mutual consent between two parties. A post-dated cheque cannot be honoured earlier than the date mentioned on the cheque. Such cheques are commonly used in businesses as they can be used as collateral or security.
A cheque becomes a stale cheque if it is presented for payment after 3 months from the date of the cheque. As you know, any cheque remains valid only for a period of 3 months. After the cheque expires the bank is not obliged to make payments against that cheque. Thus stale cheque cannot be credited.
See Also: Features of an SB account
A cheque is referred to as mutilated cheque when it is torn into two pieces. Usually, banks do not accept or credit such cheques. However, in certain circumstances, banks accept such cheques when it is torn for a side without disturbing the details or if it is mildly mutilated. The bank confirms from the payer before accepting such cheques.
It is mandatory to maintain sufficient balance in your bank account while issuing a cheque. If you issue a cheque without insufficient balance then your cheque may bounce. A frequent cheque bounce can hamper your credibility.
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