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. There are 3 parties involved in the processing of a cheque. All of these parties are equally important for the completion of cheque-based transactions.

These parties are-
Drawer– A person who issues the cheques and holds the bank account
Drawee– It is a financial institution
Payee– A person whose name is mentioned on the cheque; the one who will receive the amount (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. However, in the case of a post-dated cheque, it can still be used for the transaction within the time frame.

The above points provide a brief about a cheque. But do you know that there are several types of cheque available for various purposes?

Types of cheque

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 other person can encash the cheque
  • In order cheques, the word, “bearer” is canceled
  • These cheques are first verified by the banks to check the original bearer of the cheque before letting him/her encash the amount

Bearer cheque

  • A bearer cheque can either be encashed by the payee or by the one who presents it before the bank
  • Identification of the person who encashes the amount is not required
  • This type of cheque is negotiable and thus, can be transferred from one person to another by post
Read More: What is a Cheque Book & How to Apply for it?

Open cheque

  • Open cheques are uncrossed cheques. If a cheque is not uncrossed, it automatically becomes an open cheque
  • Such type of cheque is payable to the person who is presenting it to the drawee
  • A drawee can further transfer the cheque to another person just by writing his/her name on the cheque, which eventually makes him/her/institution the next drawee
  • For open cheques, the word “Open” should not be crossed and the drawer must sign both sides of the cheque- front and back. If the drawer fails to do so, the bank can deny the payment
  • A payee of an open cheque is required to sign the backside of the cheque when he/she receives the amount

Crossed cheque

  • A crossed cheque is one in which the issuer makes two parallel transverse lines at the top left corner of the cheque
  • Because of these lines, no other person can get possession of the cheque
  • A crossed cheque reduces the risk of money being received by any unauthorized person as the amount can only be encashed through the payee’s bank
Read More: What is a Cancelled Cheque and How to Write it in the Right Way?

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 it meets the mentioned date
  • The cheque remains valid for a period of 3 months from the date when it was made by the drawer

Blank cheque

  • Blank cheques are those in which the drawer only signs the cheque and leaves all the other columns blank
  • The amount in the cheque can be added by the drawee
  • These cheques highlight the level of trust between the parties

Gift cheque

  • Gift cheques are used for gifting a certain amount of money in the form of a cheque instead of directly giving hard cash to the receiver
  • These cheques are issued in a decorative form
  • Gift cheques can be purchased in an unlimited number

Bankers cheque

  • Bankers cheques are issued by the bank on behalf of the customer
  • The bank is directed to pay a certain amount 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 in which the written date extends the validity time period and can no longer be encashed
  • The time period to encash the cheque amount is 3 months

Traveler’s cheque

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

Self cheques

  • Self cheques are issued by the drawer himself
  • They are drawn only when a drawer wants to withdraw his/her money from the 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 don’t process the torn cheque payment without the confirmation of the drawer
  • If a cheque is not highly damaged and none of the essential information or facts is erased, 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. A drawer is the one who issues the cheque, the drawee is the financial institution and the payee is the person/institution who receives the cheque.
What is the difference between a payee and a drawee?
A payee is a financial institution or a bank whereas a drawee is the one against whom the cheque is made and issued.
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 wish to do so, make sure you trust that person completely and also ensure that he/she will not misuse the cheque or record any confidential details.
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