A written, signed, and Dated document that orders banks to pay the mentioned amount of money from the person’s account to the person in whose name the cheque has been issued. In this article, we will cover the details of the meaning of cheques, types of cheques, and features in detail.
Though we are moving fast towards digitalization, the use of cheques has not been over yet and a major share of India’s population is using cheques to transfer money. Cheque transfers take place very frequently through various banks in a physical form.
Payment by Cheque is the secured way to conduct business transactions as it helps to maintain a record in the account statement to whom the payment is made and by whom the payment is received. So it becomes easier to track the transactions through a bank account statement.
Parties in Cheque
There are mainly three parties involved in cheque transaction.
- Drawer: the person who writes the cheque i.e. fill, sign, and order the bank to pay the amount. The drawer has an account with the bank.
- Drawee: Drawee is the bank on which the cheque is drawn or who is liable to pay the specified amount written in the cheque.
- Payee: The beneficiary to whom the amount has to be paid. or the person to whom the check is written.
Apart from these three main parties there are two more parties involved in a cheque transactions.
- Endorser: When the Payee transfers the right to take the payment to another party the payee is called an endorser.
- Endorsee: When the Payee transfers the right to make the payment to another party, the part to which the right is transferred called Endorsee.
Important Points to Know Regarding Cheques
- Cheque can only be issued against saving or current bank account.
- Cheque is valid for 3 months from the issued date.
- Only the payee to whom the cheque is issued can en-cash it.
- A Cheque without date is invalid.
- The 9 digit MICR (Magnetic Ink Character Recognition) code is mentioned at the bottom of the check.
Types of Cheques
The below mentioned are the different types of cheques available. We will discuss it one by one.
- Bearer Cheque
- Order Cheque
- Stale Cheque
- Post Dated Cheque
- Anti Dated Cheque
- Self Cheque
- Traveller Cheque
- Blank Cheque
- Crossed Cheque
- Mutilated Cheque
- Cancelled Cheque
- Bankers Cheque
- Open Cheque
When the word Bearer is not canceled or crossed on the cheque it is called bearer cheque. It is a type of cheque where the bank has to pay to the person who posses this cheque or who brought the cheque to the bank.
These types of cheques can be risky as in case if it is lost, the person who found this cheque can collect the payment from the bank. the bank needs no other authorization from the issuer to make the payment.
When the word Bearer on the cheque is canceled or crossed it is called an Order cheque. As the name suggests this cheque is only payable to the person whose name is mentioned on the cheque.
The bank does background verification for the person to whom the money has to be transferred or to any other to whom it is endorsed by calling the account holder’s mobile phone.
A cheque is valid up to three months after filling it. if the cheque is presented to the bank for payment, after ending its validity i.e after 3 months, it will be considered as Stale Cheque. A stake cheque is not honored by the bank.
Post Dated Cheque
If the cheque has the date mentioned on it which is yet to come i.e in the future, it is called Post dated cheque. The release of payment can not be done before that date even if the bearer presents this cheque to the bank immediately after getting it.
Future Date should not be more than 3 months from the issued date on the cheque.
Anti Dated Cheque
If the cheque bears the date earlier than the presented date to the bank is called Anti Dated Cheque. such cheque is valid up to 3 months from the date of issuance.
Earlier Date should not be less than 3 months from the issuance date
When the person wants to withdraw the money from his/her own account by writing SELF to the payee section of the cheque is called Self Cheque. The drawer and the payee are the same in this cheque.
It is used When you want to withdraw money in cash from your account. you need to be careful with this cheque as in case if it lost or it falls into the wrong hands, the person who found it can withdraw money by presenting the cheque to the issuing bank.
If you are traveling in another country the bank issue a cheque on your request which can be encashed in another country’s bank branch is referred to as a traveler cheque. It is very helpful as you don’t have to carry a lot of cash with you.
Traveler’s cheque does not have an expiry date hence can be used for future trips. It is encashed in the traveling country currency.
A cheque which is only singed but Payee Name, Amount, Date is not mentioned is called Blank cheque.
you should generally avoid making a blank cheque, as it carries a high risk of being misplaced or else, can be used fraudulently to withdraw money from your account.
you may have noticed with two parallel lines with the words A/c Payee written on the top left. that is called crossed cheque. It is also called an Account payee cheque.
It is considered the safest cheque to issue as only the name written on the cheque will have the money released into their account. In other words, irrespective of who presents the cheque the money will be transferred only to the individual whose name is written on it.
If a cheque is torn or damaged due to any incident it is called a Mutilated cheque. It is only accepted by the bank if important details are visible and also confirming the details with the drawer.
The cheque has strike marks on it along with the words canceled written across. It is used to open a Demat account, purchasing and terminating an insurance policy, withdraw funds from an EPF account, etc. A cancelled cheque need not be signed.
This cheque is issued by the bank on behalf of the customer to pay the desired amount to another person in the same city. The specified amount is deducted by the bank from the account holder and then this cheque is issued.
This is a non-negotiable instrument as banks can not dishonor these Cheques. they are valid for three months.
It is also referred to as an uncrossed cheque. this cheque can be encashed in any bank and the payment is done to the person bearing this cheque. The person who issues this cheque has to put a signature on both sides i.e front and back.
Also Read MICR Code in Cheque
Features of Cheque
Here are the features of the cheque, we should aware of
- The payment of the cheque is fixed and certain. it can not be changed. Amount to be written in words and figures.
- A cheque is always drawn on a particular bank.
- It is an unconditional order.
- A cheque is always payable on demand.
- A cheque is an instrument in writing.
- Cheque must be signed by the customer.
- It must show Date/month/year clearly.
1-What is cheque number?
It is a unique number which is present on each leaf.it consists of 6 digits.
2-What is MICR in cheque and why is used?
MICR is a Magnetic Ink character Recognition. It helps banks to speed up the process in a smooth manner. MICR consists of 9 digits code where the first three digits represent the city, the next three the bank, and the last three digits represent a specific branch code.
3-Where I can find MICR code on cheque?
you can find MICR code generally on the bottom of the cheque leaf.it many vary from bank to bank.
4-For how long filled cheque is valid?
It is valid for 3 months.
5-Can I find IFSC Code on the bank cheque?
yes, you can find the IFSC code on the bank cheque. you can find it on the topmost part of your cheque leaf.it will also show all the banking details like branch address.IFSC code helps banks in the identification of the bank branches.
6-How many types of cheques are available in India?
There are different types of cheques we have in India. All has been covered above.