What is a Cheque? Know its Features, Benefits And Types
A cheque is a prevalent type of negotiable instrument. You need to have a savings or current account with a bank to write a cheque in your name or on behalf of someone else and tell the bank to pay the specified sum to the person listed on the cheque. Because it could result in major banking fraud, this transaction must be handled very carefully.
The most important criterion for having a chequebook is to have a bank account. By going to the bank or applying online through the bank’s mobile or Net banking application, we can get our chequebooks delivered to our doorsteps.
What is a Cheque?
A cheque is a form of financial documentation that orders a bank to transfer a specific sum of money from one person’s account to another person’s account in whose name the cheque has been made or issued.
Because no actual currency is involved in the transfer method, it provides a safe choice and reduces potential loss or theft.
The person who issued the cheque must have a current or savings account associated with the bank. According to your account type, there are many chequebook types.
A Chequebook is a series of leaves known as a cheque leaf. These pages must be carefully filled with all the required information to ensure an easy and accurate transaction.
Features of a Cheque
A cheque is an essential financial instrument. The public and the business world commonly use it when conducting personal and professional transactions.
Its features are as follows: –
- Must be Written: The cheque must be written by hand using ink or a ballpoint pen, but the customer should not use a pencil to fill out the cheque form. Although other columns may be typed or printed, the signatures must be written by hand with ink or ballpoint pen.
- Must Be Unconditional: The payment order must be given without any conditions. It will not be regarded as a cheque if there is any condition that the money is paid to the person holding the cheque.
- Must Draw on a Specific Banker: A cheque must draw on a specific banker to be valid. A cheque would not be considered genuine if the banker’s name was not mentioned. Additionally, it should include the terms of the Drawer, Drawee, and Payee.
- Must have a Date mentioned: A cheque must be signed by the drawer and have a date to be considered valid. A ballpoint pen or ink must be used to write the date.
- Must have correct Amount: The amount is always a certain sum of money in one’s account. Any significant amount written in the cheque which is more than the amount in the involved bank account will make the cheque invalid and will be dismissed by the bank.
- Must be paid in money: One of the fundamental requirements of a cheque is that it must only be payable in Money or Cash. The cheque will be considered invalid if it is not in terms of money.
- Must Mention Bearer: The cash payment may only be made to the bearer or the person whose name appears on the cheque.
Types of Cheques
Various cheque types are available in the market according to their desired use. Therefore, we will discuss twelve distinct sorts of cheques in this section.
- Order cheque: These are used to transfer finances to a payee. The payee of these cheques will be the one who receives the payments. Banks perform inquiries before issuing the funds. Then, before payment release, they verify that all the information is correct.
- Bearer Cheque: The person carrying said cheque will receive the funds, as the name implies. You must look for the word “or bearer” to find the bearer cheques. Then, you can take it to the bank and receive the money without inquiries.
- Open Cheque: Cheques that have not been crossed are called open cheques. Any bank will allow you to cash it. The payee must carry it to a bank. Sometimes, the payee might obtain the funds and transfer them to another payee. Here, both faces of the document must bear the drawer’s signature.
- Post-dated Cheque: Post-dated cheques are only cashed post the issue date. If you visit the bank to cash a cheque before the date of issue, you will not succeed.
- Blank cheque: A blank cheque is one in which the issuer signs in a decided space and leaves it blank to be filled by the receiver. These cheques carry more risk. If a deceptive person obtains said cheque, they may misuse it.
- Gift Cheque: These are issued with the intention of gifting. The presence of gift cheques simplifies the transaction. They are presented during celebrations, weddings, festivals, and other special occasions.
Also Read
- Banker’s Cheque: This cheque is given on a customer’s behalf. The bank issues such cheques for remittances. Here, the specified money is deducted from the client’s account before the bank issues the cheques.
- Stale cheque: Contrary to post-dated cheques, it is a stale cheque. The stale cheque is cashed before the due date, unlike the post-dated cheque that must be claimed beyond the date of issue. If such cheques are now more than three months old and not cashed by the payee, they will be treated as stale cheques.
- Self Cheque: Self-cheques are only for personal use. You must enter your name. Self-cheques can only be cashed at your bank branch. You will be unable to withdraw cash from any other branch.
- Cancelled Cheque: The term “cancelled” is printed across a cancelled cheque with two lines crossed. A cheque can be cancelled with just the word “cancelled” It is not possible to withdraw funds from the account using it. A cancelled cheque serves as verification that a person has a bank account.
How to Write a Cheque?
It’s crucial to write a cheque in a proper manner. Otherwise, its authenticity could be compromised. These easy steps explain what and how to make a cheque.
Step 1: The first step you have to do is take a blank cheque from your chequebook. You can locate the file for writing date in the top corner. The box must be correctly filled. Avoid making any errors.
Step 2: The payee’s name will then be written in the following step. Be careful to pay close attention to every detail when entering any information.
Step 3: Now, after entering the payee’s name, you must write the sum payable. Enter the amount in the box first as numeric and then as words. Be cautious because one more digit put mistakenly could render it unnecessary.
Step 4: The signature comes last. You must double-cheque all the information before signing. Verify that you entered the date and the sum accurately. You can now finish by signing the cheque.
Advantages and Disadvantages of Using a Cheque
The following will tell us what the cheque’s advantages and disadvantages are:
Advantages of a Cheque
- It is more secure and convenient to carry a cheque than cash.
- It is a negotiable document that may be endorsed in favour of a third party.
- If misplaced, it can be quickly tracked.
Disadvantages of a cheque
- Since cheques are not considered legal tender, payments made with them may occasionally be rejected.
- Cheques cannot be used by someone without a bank account.
- You must visit the bank to deposit a cheque into your bank account, which is time-consuming.
How to Apply for a New Cheque Book?
You can apply for a new chequebook in a variety of ways by following any of the methods listed below:
1. Internet Banking: By logging into your internet banking account, you can request a chequebook by providing necessary information such as your account number and mailing address. The chequebook is thereby sent to the address connected to your bank account.
2. Mobile Application: You can also sign in to the mobile app provided by your bank and request a chequebook there.
3. ATM: By simply following the instructions below, you can also apply for a chequebook using an ATM:
- Insert your debit card into the ATM at your bank.
- Choose the “issue new chequebook” option after providing your PIN.
- Select “Submit”
- Your chequebook will be delivered to your address once your request has been submitted.
4. Branch Visit: Additionally, you can ask for a new chequebook by going to your bank location.
What Are the Components of a Cheque?
The major components involved in a what we call a cheque are:
- Drawer: The person who signs and instructs the bank to pay the amount on the cheque.
- Drawee: The person who signs and instructs the bank to pay the amount on the cheque. The drawee is the bank on which the cheque is drawn or the person instructed to pay the amount mentioned on the cheque.
- Payee: The person to whom the money is to be given or the beneficiary.
- Amount: The amount required needs to be provided clearly in the designated box.
Mistakes You Should Avoid
After knowing the importance of what a cheque is, the following are some of the points to be kept in mind:
- When writing the money in words, you must use the term “only” to close out the sum.
- When you write the amount, avoid the spaces.
- Unless it is necessary, omit the word “or bearer.”
- MICR band, a highly important component, does not need to be signed over.
- Make sure you are aware of the date while you mention the date since it is crucially important.
- You must keep a check on the number of cheques you use.
Final Word
For both modern banks and the general public, cheques are among the most significant negotiable financial instruments. Cheques can be used to avoid carrying cash. Everyone in the world today needs to know what a cheque is. Additionally, to prevent fraud, made using current technology of the MICR band.
FAQs on Cheque
Ans: Indian Financial System Number, or IFSC, is an 11-digit alphanumeric code that serves as the distinctive identifier for a particular bank branch.
Ans: Each cheque is printed with a 6-digit unique number.
Ans: No, banks do not accept any overwriting on a cheque.
Ans: Both of them are distinct from one another and serve separate functions.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
