What is an Account Payee Cheque & How to Write It?

When you open a new bank account, the bank will issue you a welcome kit with a passbook, debit card, welcome letter and cheque book. The cheque book will contain a bunch (leaves) of cheques that you can use to make payments to different people, companies, service providers, etc., with a high degree of security. 

There are many different types of cheques you can issue based on the format in which you write them. An account payee cheque is often the best option for safe payments to a particular person or entity as it gives you full control. 

Learn about the meaning of account payee cheques and how to use them in this article. 

What is an Account Payee Cheque?

An account payee cheque is a special cheque identified by two diagonal lines on the top left corner with "Account Payee" written. It is a cheque drawn in favour of a payee's bank account that instructs the bank to transfer funds directly to the named person's bank account. 

Account payee cheques impart an extra layer of security for both the drawer (check issuer) and the payee (beneficiary of the cheque). It authorises only one person to withdraw funds and prevents anyone from writing additional details without the drawer's permission. These cheques minimise the risk of misappropriation and identity theft.

When you issue an account payee cheque, the payee must deposit it in their bank. The bank clears the cheque by transferring funds from your account to the payee account mentioned on your cheque. As such, these cheques cannot be encashed over the counter. 

The three important terms in account payee cheque are as follows:

1. Drawer: Drawer is the person who writes and signs the cheque. The cheque amount is debited from the drawer’s account and transferred to the payee’s bank account.
2. Drawee: The drawee is the bank where the cheque is issued. The drawer instructs the drawee on the account payee cheque to withdraw funds from his/her account upon encashment.
3. Payee: The payee is the person to whom the cheque is issued. The payee is the beneficiary or recipient of the cheque. It may be a person or organisation to whom the cheque amount is to be paid.

Features of Account Payee Cheques

These are the most important features of account payee cheques:

• Enhanced Security: Unlike regular cheques, account payee cheques offer an added layer of security. These cheques restrict encashment options by limiting them to a specific bank account and negotiation options. This prevents theft and fraud.
• Non-transferability: Only the authorised person can use these cheques as they are non-transferable. Account payee cheques cannot be re-endorsed or transferred to another person. That’s why they are one of the safest types of cheques. 
• Legal Protection: Multiple features of account payee cheques make them perfect from a legal perspective. As they provide the highest degree of safety and clear proof of payment, they help you settle disputes and legal challenges. 
• Required for Compliance: Regulatory authorities require financial institutions and organisations to use these safe cheques for certain transactions, typically involving large sums of money. By adhering to this form of payment, such entities can ensure transparency and safety from legal proceedings. 

How to Write an Account Payee Cheque?

Here are the steps on how to fill an account payee cheque with any bank:

Step 1: Write a regular cheque by writing the payee’s name, amount to transfer, date and sign the cheque. 

Step 2: Draw two parallel lines on the upper-left corner of the cheque, creating a crossed cheque. 

Step 3: In between the two parallel lines, write the words “Account Payee only” or “A/C Payee”. Note that without these words, the cheque will be considered a cancelled cheque.

Step 4: Remember to cancel the word ‘Bearer’ if it is present on the cheque. This prevents anyone from encashing the cheque. For additional security, you can also consider drawing a single line on the payee’s name and amount fields after your entries. This prevents any additions. 

How to Deposit Account Payee Cheque?

Here’s the process to deposit the account payee cheque by the payee:

Step 1: Visit Your Bank 

Visit the bank branch where you have an account. 

Step 2: Endorse Your Cheque 

Put your signature on the reverse side of the cheque, endorsing it for deposit. Write your name, account number and contact number on the reverse side of the cheque.

Step 3: Fill out a Cheque Deposit Slip 

Get a cheque deposit slip from a bank representative. Then, fill out the form and deposit it with the representative or drop the cheque in the cheque deposit box. 

Step 4: Wait for Verification 

Your bank will verify your cheque and details like your name, account number, signature, etc. Next, the bank will process it and credit the funds to your account.

Account Payee Cheque Types

Here are the different account payee cheque types that you can use depending on your needs:

• Regular Account Payee Cheques: This involves drawing two parallel lines on the upper-left corner, resembling a mini fence and writing “A/C payee”. The amount can only be deposited into a specific account and not cashed over the counter.  
• Special Crossed Cheque: Similar to the regular account payee cheque, it involves writing the word “account payee” plus the name of the specific bank. The payee can collect money only through this specified bank. 
• Restrictive Crossed Cheque: The drawer restricts the cheque’s negotiability. This instructs the bank to only allow direct deposit to the receiver’s account. 
• Non Negotiable Crossed Cheque: A non-negotiable account payee cheque involves writing the word “non negotiable” within two parallel lines along with the words “account payee”. This indicates that the cheque cannot be transferred further.

Account Payee Cheque Clearance Time

It takes a bank around 1 to 4 working days to process an account payee cheque, after which the payee’s account will be credited with the funds. Usually, it takes around 2 business days to clear most cheques, but it can take longer, depending on the deposit size and the relationship with the bank. The verification process also differs from one bank to another.

Account Payee Cheque Validity

Account payee cheques have a validity of 3 months or 90 days from the date of issue, after which they expire to encourage fast encashment. Afterwards, it turns into an invalid cheque and cannot be cleared by anyone. 

Account Payee Cheque Limit

There is no limit on the amount of an account payee cheque. But, in certain cases, the banks may have their own limits for certain large transactions. For example, the Reserve Bank of India (RBI) has permitted banks to collect and process account payee cheques for cooperative credit societies up to a maximum limit of Rs. 50,000. 

Common Use Cases of Account Payee Cheque

Account payee cheques are mainly used where there's a high risk of misuse. They ensure that funds are deposited directly into a payee’s bank account, minimising the chances of fraud and claims of not receiving payment. Moreover, your bank statement after clearing an account payee cheque serves as proof of payment.  

Here are some common use cases of account payee cheques:

• For Any Unknown Payees: When making payments to individuals and entities that you are not familiar with, you need a secured payment method. An account payee cheque ensures a safe interbank transfer with proof of payment that keeps you safe legally. 
• For Loan Disbursements: Many lenders and other institutions disbursing loans or cash advances use account payee cheques to transfer the sanctioned amount directly to the borrower’s bank account. This ensures there is proper documentation of disbursement.
• Vendor Payments: Businesses routinely use crossed cheques for most transactions, safeguarding them against fraud and fund diversion. Business owners can use account payee cheques to settle payments with suppliers, vendors and service providers. 
• Investment Transfers: Some investors use account payee cheques for additional safety due to the large size of transactions. Using these cheques ensures that funds to purchase stocks, mutual funds and other investments are credited to the right account.

By simply drawing two lines and then adding the word “Account Payee only”, you can create a much safer payment method than traditional cheques. An account payee cheque prevents fraud and unauthorised usage as it is non-transferable, specific, and secure. In addition, it is customisable, allowing you to create different variations, such as special crossed cheques and non-negotiable cheques.

Related Articles:
What is a Post Dated Cheque
What is Bearer Cheque & How to Write It?
What is MICR Code on Cheque? 
How to Fill Cheque for Self & Other Person