Facts Everyone Should Know About Types of Cheque

A cheque is a negotiable instrument that directs banks to transfer money from one account to another account. The processing of a cheque involves three parties. All of these parties are equally important in order for cheque-based transactions to be completed.

These parties are-

Drawer– A person who issues the cheques and holds the bank account

Drawee– It is a financial institution

Payee– The person whose name appears on the cheque; the person who will receive the funds (when transferred under banking guidelines)

Apart from that, it is important to note that a cheque remains valid for 3 months, post which, it becomes invalid. A post-dated cheque, on the other hand, can still be used for the transaction within the time frame.

The aforementioned points are brief about a cheque. But did you know that there are different types of cheques available for different purposes?

Types of cheques

There are various types of bank cheques and their purposes so that you can use the most appropriate one accordingly. Here’s the list-

Order Cheque

  • Order cheques allow only the payee to receive the amount; no one else is permitted to encash the cheque
  • The word “bearer” is removed from order cheques
  • These cheques are first verified by the banks to check the original bearer of the cheque before letting him/her encash the amount

Bearer cheques

  • A bearer cheque can be cashed by either the payee or the person who presents it to the bank
  • It is not necessary to identify the person who encashes the amount
  • This type of cheque is negotiable and can thus be transferred by post from one person to another

Open cheques

  • Uncrossed cheques are open cheques. If a cheque is not uncrossed, it becomes an open cheque
  • This type of cheque is made payable to the person presenting it to the drawee
  • A drawee can transfer the cheque to another person simply by writing his/her name on the cheque, making him/her the next drawee
  • The word “Open” should not be crossed on open cheques, and the drawer must sign both sides of the cheque-front and back. If the drawer does not comply, the bank may refuse the payment
  • When a payee of an open cheque receives the amount, he or she is required to sign the backside of the cheque

Crossed cheque

  • A crossed cheque is one on which the issuer has drawn two parallel transverse lines at the top left corner of the cheque
  • Because of these lines, no one else will be able to obtain the cheque
  • A crossed cheque reduces the risk of money being received by an unauthorised person because the amount can only be cashed through the payee’s bank

Post dated cheque

  • Post-dated cheques are the ones that bear a later date than the date of the issue
  • The written amount on the cheque will not be transferred to the payee until the specified date is met
  • The cheque remains valid for a period of 3 months from the date it was written by the drawer

Blank cheque

  • Blank cheques are those in which the drawer only signs the cheque and leaves the remaining columns blank
  • The drawee can add the amount on the cheque
  • These cheques demonstrate the parties’ level of trust

Gift cheques

  • Gift cheques are used to give a specific amount of money to the receiver in the form of a cheque rather than directly giving hard cash to the receiver
  • These cheques are issued in a decorative form
  • There is no limit to the number of gift cheques that can be purchased

Bankers cheque

  • Bankers cheques are issued by the bank on the customer’s behalf
  • The bank is instructed to pay a specific sum of money to the payee within the city
  • Banker’s cheques are printed prior and are ‘not negotiable’
  • These cheques remain valid for 3 months from the date of issue, however, they can be revalidated under some legal formalities

Stale cheques

  • Stale cheques are those with a written date that exceeds the validity period and can no longer be cashed
  • The amount of the cheque must be encashed within three months

Traveller’s cheque

  • These types of cheques are issued by the bank for the remittance of money from one location to another
  • Traveller’s cheque are accepted everywhere

Self cheques

  • Self cheques are issued by the drawer himself
  • They are drawn only when the drawer wishes to withdraw an amount from his/her bank account
  • These types of cheques should be handled carefully as if they get misplaced or lost, some other person might encash the cheque by visiting the drawer’s bank

Mutilated cheques

  • A torn cheque is called a mutilated cheque
  • Banks generally do not process torn cheque payments without the drawer’s confirmation
  • If a cheque is not severely damaged and no vital information or facts are lost, the bank may process the cheque payment
How many parties are involved in a cheque transaction?
There are three parties involved in a cheque transaction. The drawer is the person or organisation that issues the cheque, the drawee is the financial institution, and the payee is the person or organisation that receives the cheque.
What is the difference between a payee and a drawee?
A payee is a person or organization that receives the cheque, whereas a drawee is a person or organization that issues the cheque.
How can I pay myself in cheque?
Write ‘self’ on the cheque if you want to withdraw your money from your bank account.
Is it safe to hand over a cheque to someone?
No, it’s not particularly safe to hand over a cheque to someone. However, if you do so, make sure you completely trust that person and that he/she will not misuse the cheque or record any confidential details.
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