A cheque is a document that directs the bank to pay a specific amount from the drawee’s account to the person in whose name the cheque has been issued. A cheque is an important negotiable instrument and payments made through cheque are safe and convenient. A cheque comes in the printed form and is issued by the bank, when an account is opened. It consists of various fields where the drawee enters the amount to be paid, name of the person in whose name the cheque is issued, date and signature.
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Though cheques have been in use for a long time, many people do not know the difference between various kinds of cheque and their purpose. Listed below are the different types of cheques:
When the words “or bearer” printed on the cheque are not cancelled, it is known as a bearer cheque. Bearer cheque can be transferred by delivery and does not require an endorsement. In simple words a bearer cheque refers to a cheque that is payable to the one who presents it at the bank. However, these cheques are risky because they can be misused. In case they are lost, the person who finds the cheque can encash it.
When the words “or bearer” printed on the cheque is cancelled and the word ‘order’ is mentioned on the face of the cheque, this cheque is an order cheque. An order cheque is payable to the person specified therein as the payee, or to the person to whom the cheque is endorsed. So, the order cheque can be transferred by the payee by signing his/her name on the back of the cheque.
When a cheque is not crossed, it is known as an open cheque or an uncrossed cheque. The payment for these kinds of cheques can be obtained from the bank counter. An open cheque can be a bearer cheque or an order 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”. Crossed cheque cannot be encashed at the bank counter. It is used to directly credit the bank account of the payee, making it a must safer instrument.
A cheque where the drawer mentions the date earlier than the date on which it is presented to the bank, is called an “anti- dated” cheque. These types of cheques are valid up to 6 months from the date of issue.
If a cheque bears a future date (yet to arrive), then it is known as a post-dated cheque. A post-dated cheque cannot be honoured earlier than the date on the cheque.
If a cheque is presented for payment after 6 months from the date of the cheque, it is called a stale cheque. After the expiry period, no payments will be made by the banks against this cheque.
As the name suggests, the bearer cheque is payable to the cheque holder/ bearer. The unique feature of a bearer cheque is that it does not contain a name designated as the payee. The bearer cheque is payable to the person who presents is at the bank for payment. A bearer cheque does not have any name written on it, just the specified amount authorized for withdrawal.
Bearer cheque can be transferred by mere delivery; they do not require endorsing. In simple words a bearer cheque can be described as a cheque payable to any person, without assigning his/her name. These kinds of cheques are highly risky as they can be misused when lost.
There is no specified withdrawal limit on bearer cheque. In case a company or a firm draws a bearer cheque to withdraw funds for the payment of salaries to employees, the bank generally accepts the bearer cheque of higher amount and disburses the cash. But, a bearer cheque drawn in favour of an individual has limitations.
In case of a bearer cheque containing a withdrawal amount of above Rs 50,000, the bank must verify the identity and address of the individual before disbursing the cash.
Cheques are instruments that contain an order to pay a specified sum of money to the drawee’s account. Given below are the main differences of a bearer cheque and crossed cheque:
A bearer cheque is generally drawn in favour of a payee whose name is not mentioned on the cheque. So, handling these kinds of cheques can be risky, because if a bearer cheque is lost, the person who finds it becomes the bearer of the cheque and is eligible to collect cash from the bank. There are certain rules for withdrawal of bearer cheques:
An account payee cheque is a highly secured type of cheque as the specified amount can only be paid to the account holder. The payee cannot endorse the cheque to anyone else. The account payee cheque can only be encashed by depositing at the payee account. This helps in secure payments to the payee only and protects from any kind of misuse.
To write an account payee cheque, you have to cross two lines on the left corner of the cheque and write “A/C payee only” between the two lines. Remember, if you simply cross the cheque and do not mention the words “account payee”, it will become a crossed cheque and not an account payee cheque.
The reason why you issue account payee cheque in the name of the payee is because it’s safe. There are minimum chances of misuse of an account payee cheque, as the cheque can be encashed only by depositing it in the payee account. The payee cannot further endorse to anyone making the transactions through account payee cheques, safe. Account payee cheque is valid only up to 3 months.
Writing a cheque is very simple. The image given below demonstrates the fields that are present in the cheque.
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