Cheques 101: Understanding the Various Types and Their Uses

A cheque is a document that can be issued to the bank, directing the bank or financial institution to pay the sum mentioned in digits or words from one account to another. The person who draws the cheque is called the “Drawer” and the person who receives the cheque is called the “Drawee”. When the payee deposits the cheque, the bank will then withdraw the amount specified on the cheque from the drawer’s account and transfer it to the drawee’s account. 

Unlike cash, cheques are considered to be safe, secure, and convenient to handle. Cash can be lost or stolen, but cheques on the other hand can be easily traced and authenticated which makes it a more popular option for transactions of all sizes.


Things to be considered about a Cheque

  • A cheque can be issued for a current or a savings account.
  • Only the payee can get it encashed.
  • A cheque is considered to be invalid when there is no date specified on it.
  • A cheque has a 9-digit MICR code that facilitates the clearance process of a cheque.
  • The cheque amount should be written in both words and figures.
  • There should be no overwriting and must be signed properly.
  • The name of the payee should be mentioned properly on the cheque.


Benefits of a Cheque

  • It is easier to carry a cheque than to cash.
  • A crossed cheque is safer to carry than an uncrossed cheque as it can only be deposited into the bank account and cannot be encashed.
  • A cheque payment can be stopped or blocked in case of any suspicious activity arises.
  • They can be post-dated i.e. can be used at a later date.
  • An Identity proof is to be presented when depositing a cheque which adds to the level of security.
  • A single cheque can be used even to transfer a large amount.
  • There is no physical loss as compared to that of cash.
  • Crossed cheques are traceable, making it difficult to use them in any fraudulent activity.

Types of Cheques

  • Order Cheques:


  • They can only be deposited or cashed by the payee named on the cheque and nobody else.
  • The bank would first verify the original bearer of the cheque.
  • It helps to prevent fraud.

  • Bearer Cheques:


  • It can be cashed or deposited by anyone who presents it to the bank.
  • Hence, there is no need to prove the identity.
  • These are negotiable cheques i.e. they can be transferred from one person to another by just handing them over or sending them through mail.
  • They are considered to be risky and insecure forms of payment, hence not so common.

  • Open Cheques:


  • The receiver of the cheque can transfer it to another person by simply writing their name on the cheque, making them the next payee.
  • The word “Open” must not be crossed out on the face of the cheque, and the drawer must sign the front and back of the cheque. The bank may refuse to process the payment, if these conditions are not fulfilled.
  • The payee is required to sign the back of the cheque as proof of receipt. This helps to prevent fraudulent activity and ensures that the funds are transferred securely.

  • Account Payee Cheques:


  • It has two parallel transverse lines at the top left corner which indicates that the cheque can only be deposited into the payee’s bank account and cannot be encashed by anyone else.
  • It reduces the risk of a cheque being received by an unauthorized person.
  • The payee has to go to the bank to get the same deposited into their bank account.
  • It adds an extra layer of security.

  • Blank Cheques:


  • It is a cheque that has been signed by the person issuing the cheque but not payee’s name or amount has not been mentioned.
  • They are considered high-risk forms of payment and are not acceptable in many banks or financial institutions.

  • Post Dated Cheques:


  • These cheques bear a future date on them.
  • The amount will not get transferred until the date mentioned on it is reached.
  • It remains valid for a period of 180 days.
  • These are used when the payer wants to ensure that the funds will be available on the specified date and wants to avoid the risk of the cheque bouncing due to insufficient funds.

  • Stale Cheques:


  • It is a written payment order that is no longer valid due to the passage of time.
  • The cheques which are at least 180 days old i.e. 6 months are considered to be stale.
  • If it is presented for payment, the bank will refuse the same.

  • Travelers Cheques:


  • These cheques are issued by banks to make purchases or withdraw funds while traveling.
  • These are pre-printed cheques with a specified amount and can be used to pay for goods and services.

  • Self Cheques:


  • It is issued by an individual and not by an organization.
  • It is issued when an individual wants to withdraw money from a bank account of their own. 

  • Mutilated Chequed:
  • A cheque that has been torn or otherwise damaged, which the banks will not process unless the drawer confirms the same.


Recording the Payment

It is of utmost importance to keep track of a cheque to ensure the accuracy of the financial transactions being made, have a check on the balances after the deposit of the cheque, and avoid any potential issues or confusion. Customers should keep a note of the following:

  • Keep track of every cheque that has been made, including its cheque number, date, payee, and the amount.
  • A cheque register can be made to record the details of every cheque.
  • It will help to keep track of the cheques. Also, it ensures the accuracy of the financial transactions.

For example, If Mr. A draws a cheque from Allahabad Bank, by recording the payment he can keep track of the accuracy of the transaction. Also, if Mr. A wants to make an Allahabad Bank Balance Check, he can do so if the record is being made. But, the accurate bank balance can be seen only when the cheque is cleared. 

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