Meaning of cheque
A cheque is a bill of exchange in which one party orders the bank to transfer the money to the bank account of another party. It is a negotiable instrument that is covered under the Negotiable Instruments Act, 1881. There are three parties involved in the transaction – the drawer is the person who writes the cheque, the drawee is the bank that has to transfer the funds and the payee is the person in whose name the cheque has been issued. A cheque can be issued against a savings account or a current account.
What are the Main Features of a Cheque?
A cheque is an unconditional order in writing. The payment of the cheque is made in the form of cash. A cheque is drawn on a particular bank and is always payable on demand. The amount is always a certain sum of money that is present in one’s account and cannot exceed the same. This cash amount is to be paid to the person mentioned therein, or order, or the bearer. Signature on the exchequer is mandatory and should be only by the maker.
Types of Cheques
Bearer Cheque: This type of cheque is payable to the person who presents it to the bank for payment. It does not require any identification, and anyone can cash it.
Order Cheque: An order cheque is payable only to the person named on the cheque. The payee must endorse the cheque by signing the back of it before depositing or cashing it.
Crossed Cheque: A crossed cheque has two parallel lines across its face. This provides additional security against fraud and theft.
Post-Dated Cheque: A post-dated cheque has a future date on it, and it cannot be cashed until that date arrives. This type of cheque is commonly used for payments that are scheduled in the future, such as rent or loan repayments.
Traveller's Cheque: A traveller's cheque is a type of cheque that can be used as a form of payment when travelling. They are issued by banks or other financial institutions and can be replaced if lost or stolen.
Self Cheque: A self-cheque is a cheque that is written by the account holder to themselves.
Validity of a cheque
A cheque is valid for a period of 3 months after the date of issue of cheque (the date is indicated on the top right-hand corner of the cheque).
What is Cheque Number, and How to Find It?
A cheque number is a unique identifier assigned to each cheque issued by a bank account holder. It helps to keep track of the cheques that have been issued and cashed, and also serves as a reference number for transactions related to the cheque.
You can find the cheque number at the bottom of the cheque, usually on the right-hand side. It is the series of digits printed after the routing number, account number, and the bank's name and location. The cheque number is typically printed in magnetic ink and is also machine-readable for faster processing.
Advantages and Disadvantages of Using a Cheque
Advantages
It is more convenient and safer to carry around than cash.
It is a negotiable instrument that can be endorsed in favour of a third party.
They can be easily traced if lost.
Disadvantages
It is not legal tender money and hence, payment via a cheque can be refused.
Individuals without bank accounts will be inconvenienced by crossing of cheques.
Depositing cheques into one’s account is time consuming and requires one to go to a bank branch.
Positive Pay System
The positive pay system is a process of reconfirming the details of large-value cheques i.e. cheques exceeding Rs. 50,000. If the details match, then the cheque will be honoured. If there is a mismatch then the discrepancy is flagged. This system augments customer safety in cheque payments and reduce instances of fraud occurring due to tampering.
