All You Need to know about Cheques

Cheque is a form of cashless payment that allows users to transact conveniently. The drawn cheque amount is further debited from the drawer’s bank account and credited to the payee’s one. With digitalization at its peak, cheques still work as the backbone of the banking sector and are used for a major number of low to high limit transactions.

In this blog, we will explain to you how cheques are still the most prominent part of banks and what makes them stand tall in the world of digital banking.

What is a Cheque?

A cheque is a financial instrument or a document that directs banks to send a particular amount of money from one bank account to another. The person who writes and signs the cheque is called a drawer, and the person who receives the amount is called a payee. Any amount mentioned on the cheque is deducted from the drawer’s account right when it is received by the payee.

According to the Negotiable Instruments Act 1881, a cheque is defined as “A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.”

Bank cheques are considered safe, secure and the most convenient method for performing a transaction between one party and another. The transaction does not involve hard cash but a bank’s authentic cheque which is linked with the user’s account.

Here are a few things to keep in mind about a cheque-

  • A cheque can be issued against current and saving accounts
  • None other than the Payee can encash the cheque’s amount
  • A cheque without the mentioned date is considered invalid
  • A bank’s cheque remains valid for 3 months from its issue date
  • There is a 9 digit MICR (Magnetic Ink Character Recognition) code written at the bottom of the cheque that makes the process of cheque clearance easy
  • The cheque amount should be written in words and figures
  • The cheque should be duly signed by the drawer in an appropriate manner without overwriting
  • A cheque should have the name of the payee written properly

What are the Characteristics of a Cheque?

A cheque, when monitored closely can showcase how it is still the backbone of banks, as a cashless medium and a way to make transactions secure. Given below are all the characteristics of a cheque that makes it stand tall in the era of digitalization-

  • Cheques are a written form of financial instrument. They can be written using a ballpoint pen, ink pen, and can be printed or typed. Oral instructions or directions are not valid for cheques.
  • Cheques carry 3 parties-
  1. Drawer- The one who draws cheques (one who pays the amount)
  2. Drawee- The financial institution
  3. Payee – A person or the institution who will receive the amount
Read More: 4 Ways to Apply for a Cheque Book Easily
  • Cheques are always drawn by a bank account holder, no other person without a bank account can have access to cheques
  • Bank cheques carry unconditional orders, any conditional order for the cheques gets dishonoured by the bank
  • Cheques should be duly signed by the account holder. Unsigned cheques or the signature of a non-account holder are considered invalid
  • The amount to be paid should be written in both, numbers and words in the cheque
  • The name of the payee should be clearly mentioned in the cheque. A payee can be a person or a company, or an institution
  • A cheque should have a clear mention of the date, month and year
  • A cheque remains valid for 3 months, after that, it is considered invalid. However, post-dated cheques are not seen as invalid
  • Cheques do not require a stamp as in the case of the bill of exchange
  • A cheque is payable on demand

Benefits of a cheque

Before exploring the numerous benefits of a cheque, let us first show you the number of cheque-based transactions from 2011 to 2019.

Cheque Transactions in India (2011-2019)

Year Transactions (in billions)
October 20111,107.1
October 20121,863.26
October 20133,754.69
October 20145,626.36
October 20155,806.75
October 20165,974.14
October 20176,340.16
October 20186,948.47
October 20196,591.44

Billions of cheque-based transactions are proof that cheques are nowhere going to be obsolete and in fact, they will remain a major form of cashless payments. The reason for the growing number of cheque based transactions are given below-

  • Cheques are more convenient to carry as compared to hard cash
  • A crossed cheque is always safe to carry
  • One can stop/block the cheque payment in case of any suspicious activity
  • Cheques can be post-dated
  • Cheques are safe because a payee might require to present a valid identity document that should match the information written on the cheque
  • A drawer can transfer an even higher amount of money to a payee just through a single cheque
  • A cheque prevents the physical loss of hard cash
  • Cheques can be used as proof of identity
  • Crossed cheques are traceable, thus, they cannot be used fraudulently

FAQs
What is a cheque?
A cheque is a financial instrument that directs the bank to send a particular amount of money from the drawer’s account to the payee.
How long can a cheque remain valid?
A cheque remains valid for 3 months, after which it becomes invalid.
Does anyone still use a cheque?
Yes, cheques are still the most important pillar of the banking sector. Though digitalization has taken the world by storm, cheques on the other hand are still used for a major number of transactions in India.
Can I make a self cheque?
Yes, you can make a self cheque if you wish to withdraw money from your bank account.
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