All You Need to know about Cheques

Cheques are a type of cashless payment that allows users to transact easily. The amount of the drawn cheque is then debited from the drawer’s bank account and credited to the payee’s. Even with digitalization at its peak, cheques remain the banking sector’s backbone and are used for a large number of low to high limit transactions.

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

What is a Cheque?

A cheque is a financial instrument or document that instructs banks to transfer money from one bank account to another. The person who writes and signs the cheque is known as the drawer, and the person who receives the money is known as the payee. Any amount specified on the cheque is deducted from the drawer’s account as soon as the payee receives it.

Bank cheques are regarded as the safest, most secure, and most convenient method of conducting a transaction between two parties. The transaction does not involve hard cash, but rather an authentic bank cheque linked to the user’s account.

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

  • A cheque can be issued in the name of a current or savings account
  • The amount of the cheque cannot be cashed by anyone other than the Payee
  • A cheque that does not include the specified date is considered invalid
  • A bank cheque is valid for three months from the date of issue
  • The bottom of the cheque has a 9-digit MICR (Magnetic Ink Character Recognition) code that simplifies the cheque clearance process
  • The amount of the cheque should be written in words and figures
  • The drawer must sign the cheque in an appropriate manner without overwriting
  • The payee’s name should be properly written on a cheque

What are the Characteristics of a Cheque?

A cheque is considered one of the most secure ways of transaction. All of the characteristics of a cheque that make it stand out in the digital age are listed below-

  • Cheques are a type of written financial instrument. They can be written with a ballpoint pen, an ink pen, printed, or typed. Cheques do not accept oral instructions or directions
  • 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
  • Cheques are always drawn by a bank account holder; no one else can access cheques if they do not have a bank account
  • Bank cheques have unconditional orders; any conditional order for the cheques is rejected by the bank
  • Cheques must be signed in full by the account holder. Cheques that are unsigned or have 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 payee’s name should be clearly stated on the cheque. A payee can be an individual, a business, or an institution
  • A cheque should clearly state the date, month, and year
  • A cheque is valid for three months after which it is considered invalid. Post-dated cheques, on the other hand, are not considered invalid
  • Cheques, unlike bills of exchange, do not require a stamp
  • A cheque is payable on demand

Benefits of a cheque

Following are the benefits of a cheque-

  • Cheques are more convenient to carry as compared to hard cash
  • A crossed cheque is always safe to carry
  • In the event of any suspicious activity, the cheque payment can be stopped or blocked
  • Cheques can be post-dated
  • Cheques are secure because a payee may be required to present a valid identity document that matches the information on the cheque
  • A drawer can transfer a larger sum of money to a payee with a single cheque
  • A cheque protects against the physical loss of hard cash
  • Cheques can be used as identification documents
  • Crossed cheques are traceable, thus, they cannot be used fraudulently
FAQs
What is a cheque?
A cheque is a financial instrument that instructs the bank to transfer a specific amount of money from the drawer’s account to the payee’s account.
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. Despite the fact that digitalization has taken the world by storm, cheques are still used for a large number of transactions in India.
Can I write a self cheque?
Yes, you can write a self cheque if you wish to withdraw money from your bank account.
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