How to Write a Cancelled Cheque?

Cancelled cheques are another instrument used for the final settlement of accounts, unlike ordinary checks, which are instruments of payment that stand behind the original obligations. Generally used for documentation purposes, the cancelled cheques are helpful while setting up electronic fund transfers, giving instructions on direct deposit, or writing automatic bill payments. 

In this article, we will discuss what a cancelled cheque is, how to write a cancelled cheque and more. 

What is a Cancelled Cheque?

A cancelled cheque is where the word ‘Cancelled’ is written across its face between two parallel lines. After the cheque has been cancelled, you cannot use it to encash or make any payments. It now serves merely as evidence of your bank account details, such as account number, bank name and branch, or MICR Code (Magnetic Ink Character Recognition code).

In addition, you can provide cancelled cheques to banks, an employer, or service providers for specific requirements. It includes setting up an Electronic Clearing Service (ECS) for salary and utility payments. In addition, you can use it to link the account for mutual fund investments, payment of insurance premiums, or SIPs. You can also use it to verify account details for loan processing or KYC documentation. 

How to Write a Cancelled Cheque?

You can follow these simple steps to create a cancelled cheque:

Step 1: Take a Fresh Cheque Leaf

• Take a fresh cheque from your chequebook to write a cancelled cheque. 

Step 2: Draw Two Parallel Lines

• After taking a fresh cheque leaf, draw two diagonal lines across the cheque using a pen.

Step 3: Write Cancelled

• Write the word ‘CANCELLED’ in capital letters between the diagonal lines. Ensure everybody can read it and it covers most of the cheque. 

Step 4: Do Not Sign the Cheque

• A cancelled cheque need not be signed. However, you can sign within the signature box if you want to.

What are the Uses of Cancelled Cheques?

Here are the uses of cancelled cheques:

• KYC Verification

Banks could require a cancelled cheque from the consumer for KYC verification when opening a new bank account, investment account, or credit card account.

• Payment Proof

A cancelled cheque will serve as proof of payment and has relevant financial details such as the account holder’s name, bank account number, and MICR code. It can prove useful in keeping track of the payment in case an issue arises.

• Dispute Resolution 

A cancelled cheque mostly serves when there is a dispute concerning payment. It verifies when the payment was made, in what amount, to whom it was made, and other details.

• Transaction Verification 

In some cases, it may be necessary for you to prove that a transaction took place. It is necessary for a high-value transaction. Hence, cancelled cheques can assist you in proving any deposits or withdrawals from your bank account.

• Tracking Payments

Cancelled cheques help track payments and expenditures over time, helping to manage finances. They can also verify the payment of recurring bills.

Why is a Cancelled Cheque Required?

Here are a few scenarios where you require a cancelled cheque:

• Loans Application

The lenders demand a cancelled cheque to cross-check your bank account details while disbursing the loan amount. It ensures the relevant amount gets credited to the right bank account.

• Insurance Policies

Most insurance companies request a cancelled cheque while initiating premium payments or claim settlement to cross-check the account from which payments are to be debited or into which the claims are to be credited. 

• Investment Purposes

Mutual funds and stock market investments might require a cancelled cheque to verify your bank account used for transactions. Such verification is critical for the free transfer of funds when making investments or withdrawals. Apart from these, companies ask for a cancelled cheque when you want to withdraw EPF money.

• Tax Documentation

Cancelled cheques are most useful in your income tax return filing process. They act as proof of bank account details for income tax refunds.

• Auditing and Compliance

Companies and organisations make use of cancelled cheques to comply with all financial regulations and audit requirements. They act as proof of payment and aid in tracking financial activity.

What are the Risks with Cancelled Cheques?

While cancelled cheques are generally safe, there are some risks associated with them, which are listed below:

• Fraudulent Use

A cancelled cheque contains sensitive details such as your bank account number, branch name, and MICR code. If it gets into the wrong hands, it can be used for fraudulent activities like unauthorised transactions or account access.

• Identity Theft

Cancelled cheques may include your name and address, making them a potential tool for identity theft. It can lead to opening fraudulent accounts or credit lines in your name.

• Misplacement or Loss

If a cancelled cheque is lost or misplaced, it may be accessed by an unauthorised person. It can lead to unintended misuse of your account details.

• Lack of Security Features

A physical cancelled cheque is not encrypted or otherwise secured, so unlike digital financial documents, it is easy to photocopy or duplicate.

• Unauthorised ECS Setup

In rare cases, someone with access to a cancelled cheque can attempt to set up unauthorised Electronic Clearing Service (ECS) fund transfers.

Thus, writing a cancelled cheque is easy but critical for financial transactions. Understanding how to write and use a cancelled cheque appropriately is a must. However, take necessary precautions to avoid its misuse while furnishing cancelled cheques.

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