Understanding Cheque
A cheque refers to a document that is used to make payments from one person’s bank account to another. It instructs the bank to transfer a specific amount of money from the account holder’s account to the person or organization mentioned on the cheque. The validity of cheques is 3 months after the date of issue.
Covered under the Negotiable Instruments Act 1881, cheques are also called negotiable instruments, that guarantee the payment of a specified amount either when the document is presented to the bank or by a specified date. In the transfer of cheques, three parties are involved. There is a drawer who writes the cheque, the drawee who transfers the funds, and the payee who is the person in whose name the cheque is issued.
Types of Cheques
Bearer Cheque
- Payable to the person who presents the cheque at the bank.
- The holder can receive the payment without needing any authorization of their identity.
Order Cheque
- Payable only to the person named on the cheque.
- The payee must approve the cheque before it can be cashed or deposited.
- The bank will authenticate to confirm the identity of the cheque bearer before releasing the payment, thus ensuring more security.
Crossed Cheque
- Has two parallel lines with the words ‘a/c payee’ written across it, ensuring that payment will only be made to the individual whose name appears on the cheque, irrespective of who presents it.
- Ensures that the cheque is only used for deposit, increasing security.
Post-Dated Cheque
- Cheque that is dated for a future date.
- Even if the bearer presents the cheque to the bank immediately after receiving it, the bank will only process the payment on the date specified on the cheque.
Traveller’s Cheque
- A pre-printed cheque is used as a form of payment while traveling. It can be replaced if lost or stolen and is accepted globally.
- Traveler’s cheques do not have an expiration date and can be used for future trips.
Self Cheque
Cheques that are written by the account holder to themselves.
Can be recognized by the word “self” written in the drawee column. These cheques can only be cashed or deposited at the issuer’s bank.
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