A cheque is issued to direct the bank to pay the specific amount to the payee or beneficiary to whom the cheque is addressed. Both current account holder and savings account holder can issue a cheque. It is a negotiable instrument used to carry a transaction. There are different types of cheques issued by the bank.
A cheque guarantees the payment of the amount to the bearer. While writing a cheque – date, amount, signature of the account holder and the name of the beneficiary are necessary in order to initiate the payment by the bank. If any of the information is written wrong, the bank will not accept your cheque.
Different Types of Cheques
The purpose of negotiable instrument is to ensure that monetary transactions can take place smoothly as per the required specifications. For instance, cash is the most preferred mode to make immediate payments. For payments that can be accepted at a later date, people accept cheques.
Lately, for a direct account to account transaction, we have credit cards and debit cards. Each type of payment has a specific negotiable instrument attached to it. In case of cheques, there are different types of cheque which one uses in various circumstances.
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Some of the most common types of cheque are mentioned below:
Bearer Cheque
- This cheque is paid to the bearer of the cheque or whose name the cheque carries in the column meant for the name of the drawee.
- This cheque has “or bearer” printed at the end of the dotted lines, which is meant to have the name of the drawee.
- This cheque can be presented over the counter of the drawee’s bank and is payable to the one presenting it.
- It is a transferable instrument and this can be passed on to another by mere delivery, there is no need to endorse this type cheque.
Order Cheque
- In this cheque, the printed word “bearer” is cancelled thereby making it payable only to the person whose name is written in the place of drawee.
- Once “bearer” has been cancelled on the cheque, it is automatically understood that this is an order cheque and the bank can only complete the transaction once they have identified, to their satisfaction, the bearer of the cheque to be the same person, as named in it.
Crossed Cheque
- In a crossed cheque, the drawer makes two parallel transverse lines at the top of the corner of the cheque with or without writing “a/c payee”.
- This makes sure that no matter who presents the cheque to the drawer’s bank, the transaction is made into the account of the person named in the cheque only.
- The advantage of crossed cheque is that it reduces the risk of money being given to an unauthorized person
- This type of cheque can only be cashed by the drawee’s bank.
Open Cheque
- Open cheque is also called uncrossed cheque sometimes.
- Any cheque that is not crossed comes under open cheque category.
- This cheque can be presented to the drawee’s bank and is payable to the person presenting it.
- The drawee of this cheque can also transfer it to another person by writing their name on the cheque and thereby making them the drawee.
- To make the cheque open, the word OPEN should not be crossed off, and the person issuing the cheque must ensure his/her signature on both the front and the back of the cheque otherwise, the payee may be denied the payment by the bank.
- The payee is also expected to sign at the back of the cheque while receiving the amount.
Post-Dated Cheque
- A cheque bearing a later date than the one on which it is actually issued, is called a post-dated cheque.
- This cheque maybe presented to the drawee bank at any time after its issuance, but the money will not be transferred from the account of the payer until the date mentioned on the cheque.
- The payee can also present the cheque after the date mentioned on the cheque too.
- It will still be valid, and the money will be transferred to the payee’s account.
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Stale Cheque
- A stale cheque is one which is past its validity period and can no longer be encashed.
- Initially, this period was six months from the date of issue.
- Now this period has been reduced to three months.
Traveller’s Cheque
- These may be equated with a universally accepted currency.
- A traveller’s cheque is available almost everywhere and comes in various denominations.
- This is an instrument issued by the bank itself to make payments from one place to another.
- There is no expiry date of a traveller’s cheque and this it can be used during your next travel as well
- You also have the option to encash it once you are back from your trip.
Self Cheque
- The drawer usually issues a self-cheque to his or her self.
- The name column of the drawee has the word “self” written in it.
- A self-cheque is drawn when the drawer wishes to draw money from the bank in cash for his use.
- This cheque can only be encashed in the account holder’s or the drawer’s bank.
- This cheque must be used carefully because if it is lost, another person may easily get it encashed by visiting the drawer’s bank.
Banker’s Cheque
- A banker’s cheque is a cheque issued by the bank on behalf of the account holder in order to make payment of a specified sum, by order, to another person within the same city.
- It is valid only for three months from the date of issue, but if needed, can be re-validated upon filling certain legal obligations.
How is a Bearer Cheque Different from an Order Cheque
Below mentioned table shows how is a bearer cheque different from an order cheque.
| Bearer Cheque | Order Cheque |
| A bearer cheque is paid to the bearer i.e., the person who carrier the cheque to the bank will get the payment of the cheque | Order cheque is paid to the person whose name is mentioned on the cheque i.e., only that person can go and collect the cash from the bank |
| You will find the word “bearer” at the end of the name of the payee | You will find the word “order” at the end of the name of the payee |
| Any person can encash the bearer cheque | The cheque can be encashed by the payee or as per the payee’s order |
| Banker or drawee is not responsible for payment of funds to the wrong person | Banker or drawee will be held responsible if the funds are transferred to the wrong person |
| Bearer cheque can be converted to an order cheque by the drawer | Order cheque cannot be converted to a bearer cheque by the drawer |
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What is an Account Payee Cheque?
An Account Payee Cheque is a highly secured type of cheque as the amount can only be deposited in the account of payee. The payee cannot endorse this cheque to anyone else. To understand the concept better, one must understand the difference between a drawer, drawee and payee.
- A drawer is a party that writes and signs the cheque usually. It is the person who holds the account from which the money will be deducted or is an authorised signatory for the account.
- Drawee is the party upon whom the drawer writes the cheque. Drawee is usually the bank and the drawer orders the bank to draw the amount.
- A payee is a party to whom the final payment is made and his/her/its name is written on the cheque
So, in case of an account payee cheque, the payment will be made only by depositing it to the payee’s account.
How to Write an Account Payee Cheque?
Below-mentioned process explains how to write an account payee cheque:
- To write an account payee cheque, you must cross two lines on the left corner of the cheque and write “Account Payee” between the two lines.
- Remember, if you simply cross the cheque and do not write the words “Account Payee”, it will be a crossed cheque and not an account payee cheque.
- The features of a crossed cheque are different from an account payee cheque. Hence, the former must not be confused with the latter.
What is the Significance of an Account Payee Cheque?
The main reason why practice of writing an account payee cheque is popular is that it is the safest form of a cheque.
- Since the amount will only be paid by depositing it into the savings accountof the payee, there are few chances of cheque being misused.
- Moreover, the payee cannot endorse the cheque to anyone else further adding to the secure nature of these cheques.
- Another important point to note about account payee cheque is that, this cheque is only valid for three months.
Why do People Use Cheques?
The below mentioned points will clarify as to why do people use cheques to transfer funds.
- Despite digital banking being so popular and handy, different types of cheque still hold their importance.
- Cheques are a good way to carry a significant amount of money which is not possible in any other way.
- In the case of a misunderstanding or fraud, carefully prepared cheques can always be tracked easily and this is because cheques are a physical evidence of making a payment.
- Cheques create a wide customer case as facility to process electronic payment is not know to everyone. Hence, people who are not adept with digital banking still prefer exchanging money through cheques.
FAQs
Q. In how much time does a cheque get cleared?
Ans. It usually take two business days to get a cheque cleared.
Q. Can I get my cheque encashed form whichever branch possible?
Ans. Yes, you can get your cheque encashed from whichever branch that cheque belongs to.
Q. Can I use my dishonoured cheque again?
Ans. Yes, a dishonoured cheque can be used again if you think there are chances of cheque being honoured the second time.
Q. What is the maximum validity of a cheque?
Ans. A cheque is valid for three months from the date of issuance.
Q. Can I use my wet cash to get it encashed?
Ans. Yes. You can use your wet cheque to get it encashed if the cheque is in right condition. If the information mentioned on the cheque is visible, authentic and complete.
Q. What is the meaning of a bounced cheque?
Ans. A bounced cheque is a cheque which has been dishonoured by the bank because the drawer failed to keep enough money in the account in order to get the checked honoured.
Q. What are the reasons for a cheque getting bounced?
Ans. The reason for which a cheque can be bounced are incorrect date, signature mismatch, amount mismatch with figures, damaged cheque, overwriting on the cheque, if the payment has been stopped and the major reason of a cheque getting bounced is due to insufficient funds.