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What is Cheque?

Along with the dynamic trends, there formed an evolution in the way money is transferred from person to person. This evolution of documentation is termed a cheque. Know the importance of cheques and the meaning of cheque for banking and monetary transactions here.

Meaning of Cheque Explained

The cheque is an instrument with an unconditional order, addressed to the banker. It is signed by the person who has deposited cash in the bank. A cheque can be issued for a current account or the savings account and can be used to deposit or pay money to other people through the bank account. 

Every cheque is unique and contains a unique cheque number, MICR, and IFSC code. There are a total of five parties involved in the cheque.

Features of a Cheque

Here are the detailed characteristics of a cheque:

  • Cheques can be issued by individuals who hold a savings account or a current account.
  • Once the payee of the cheque is written, it cannot be changed.
  • The amount that is written on the cheque cannot be changed later on.
  • An oral order to pay the money is not recognized as a cheque.
  • The cheque is an unconditional order and not a request to the bank.
  • The cheque carries validity only when it is signed and dated.
  • The unsigned cheques are invalid.
  • The Cheques are usually valid from the day they are dated. Usually, the cheques longer than six months from the date mentioned are called stale cheques. Although they are stale cheques, they are still valid.
  • The cheques with a sign but no amount written are called blank cheques. These are the riskiest as they can be used by others or also misused.

What is Cheque Number, and Where to Find It?

Every cheque contains a cheque number that is mentioned on the leaf. The cheque number is used to find the status of a cheque. To find the cheque number, you can look at the first six numbers that are present on the bottom of the cheque.

Cheque Number in Cheque Leaf Explained

The cheque number example could be used to track the status of the cheque. The bank number on cheque is a unique number that assists in identifying a cheque. The following points explain the format of the cheque:

  1. There are six unique cheque number digits at the bottom-left corner of the leaf.
  2. The MICR code is the magnetic link character recognition code. The nine digits of the MICR code indicate the bank and branch from where the cheque was initially issued to the account holder. The first three digits of it are the city code; the next three digits will reflect the bank code, and the last three represent the code of the branch.
  3. After the MICR code, there are the six digits that are mentioned on the cheque, and they are a portion of the account number.
  4. The last two digits at the bottom of the leaf are the transaction ID. It assists in knowing if the cheque issued is local or payable at par. A local cheque could be cashed only with the issuing bank and payable at the par cheque and could also be cashed at any branch of the issuing bank. Most of the cheques are payable at par with the core banking system at all of the banks.
  5. All of the numbers that are mentioned above are written with magnetic ink and could only be read with the magnetic ink reader.
  6. All of the banks would mostly have the same format of the cheque with not a lot of variations at all.

How to Write a Cheque?

There are specific steps while writing a cheque:

  • The first step is the crossing of the cheque - which entails drawing two parallel lines on the document's left-hand corner.
  • In the 'Pay' field, insert the date and the payee's name. Write the sum in words and add the word 'only' at the end.
  • Then write it in numbers, ending with the symbol '/-.'
  • Sign your name at the bottom of the cheque.

Things to Know Before Writing a Cheque

There are particular prerequisites before you can write a cheque, and they are mentioned below:

  • On a cheque leaf, never overwrite.
  • On the leaves, never leave any form of space between numbers or words.
  • On a cheque, never leave any column blank.
  • A check should not be folded or stapled.
  • Always use the same signature and sign clearly.

Parties to Cheque

The different parties include:

  • Drawer
  • Drawee
  • Payee
  • Endorser
  • Endorsee

Drawer: This is the person who signs and issues the bank to pay the respective amount of money from his account to the person who can draw the cheque. In other words - the account holder of the cheque.

Drawee: This is the particular bank from which the cheque needs to be drawn.

Payee: This is the person who receives the payment from the holder of the cheque through the bank.

Endorser: This is when the right of payment is transferred from the payee to another party, and then the payee is called an endorser.

Endorsee: This is when the right to take the payment is transferred from the payee to another party, and the party to whom the right is transferred is called the endorsee.

Types of Cheques In India

There are different kinds of cheques for different purposes, which are mentioned below:

Open cheque

An open cheque is a form of leaf that can be used to obtain payment from a bank or to put into one's own account. This cheque can also be issued to another person by the bearer.

Depositing 

Use a cheque to deposit a certain amount into your bank account. It could take a few days for the money to appear in your account to be withdrawn, depending on the bank process.

Bearer cheque

A bearer cheque is one in which the payment is paid to someone acting on behalf of the payee/beneficiary for whom the cheque was issued. In order to process this type of cheque - the word, 'carrier' must be included in the leaf.

Cashing a Cheque

The cash in hand is being presented.

Self-Cheques

A self-cheque is a cheque written in one's own name, with the drawer and payee being the same person. On the cheque, you would enter the word "self" in the space for the drawee's name. It could only be deposited in the bank of the drawer. When you need to withdraw money from your own account in cash, you can utilize a self-cheque. It's important to remember that if a self-cheque falls into the wrong hands - it could easily be utilized by another person to withdraw money from the bank where the cheque was issued, so keep it safe.

Post-dated cheque

A post-dated cheque is a crossed or accounts payee cheque with a future date to meet a financial obligation in the future. It is valid for the tenure of three months from the date of issuance.

Account Payee Cheques

A bearer's cheque with the words "account payee" inscribed on the upper left-hand side, within two parallel lines and crossed twice, is known as an account payee cheque. A "crossed cheque" is another name for this. It is regarded as the safest method of issuing a cheque because the money written on the cheque will only be transferred to the person whose account is written on the cheque.

Traveller's Cheque

When travelling, a traveller's cheque is used to prevent carrying large quantities of cash and to ensure more safety and security. It can be used to purchase foreign currency when travelling overseas.

Banker's cheque

Banker's cheques are cheques that the bank issues to ensure payment.

Crossed cheque

An account payee cheque is another name for a crossed cheque. It's a bearer's cheque with the words "account payee" inscribed in two parallel lines on the top left-hand corner. It's the safest type of cheque to write because only the person whose name appears on the cheque will have money sent to their account.

Stale Cheque

In India, a cheque is good for three months from the date of issue. A stale cheque is one that has been deposited three months after the date on which it was signed.

Blank Cheque

A blank cheque is one that has all of the fields saved for the drawer's signature left blank.

Dishonour of Cheque

When a bank doesn't deposit the payment that is written on the cheque into the payee's account, it is known as cheque dishonour. A 'cheque Return Memo,' which outlines the reasons for the cheque being dishonoured, is normally issued to the payee's bank. The bank of the drawee issues this memo. The payee's bank presents the dishonoured cheque and memo to the payee. Within three months of issuance - the payee can resubmit the identical cheque. The payee should also send a notification to the drawer saying that the money needs to be paid within the period of 15 days of receipt of the notice.

Ante-dated Cheque

An ante-dated cheque has a date put on it that is earlier than the current date.

Mutilated Cheque

This is one that has been torn or otherwise destroyed before being delivered to the bank. If the necessary information on a cheque is torn or not visible, the cheque becomes void.

What is Cheque? - FAQs

If I do not have a bank account, can I write a Cheque?

No, you can only write a cheque if you are saving a current account holder in a bank.

What is the meaning of a Cheque?

It is the printed form, where you will be allowed to write an amount of money and to whom it needs to be paid too.

Can I use the cheque instead of the money?

It can act as the legal tender for money.

Who is eligible to cross a cheque?

The holder is usually eligible to cross a cheque.

When will banks refuse to make the cheque payment?

In the following cases, the banks will refuse to make a cheque payment:

  1. If the cheque leaf does not have a date.
  2. If more than three months have elapsed.
  3. If the post-dated cheque is issued before the date that is mentioned.

What happens if a cheque is misplaced during the clearing process?

The bank will notify the client who is the cheque's issuer as soon as possible, and the consumer will be entitled to compensation.

Is a cheque only paid during business hours?

Yes. A bank is only obligated to pay during business hours.

Who has the authority to sign the cheque?

A cheque can be crossed by the drawer, the holder, and then the banker.

What happens if a banker makes a mistake when cashing a crossed cheque?

The bank will be held accountable for the loss.

What is the meaning of a cheque number?

A cheque number is a one-of-a-kind number printed on each cheque leaf. This is a 6-digit number.

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