What is Cheque? Definition, types and parties involved in the cheque. A cheque may be defined as “An order which is unrestricted in written form signed by maker address to a specific bank with the direction to pay a certain specific amount to a specific person on demand”.
There are various types of cheque, but before moving towards the types of cheque, let’s talk about the essentials of the cheque.
- It is an unconditional order.
- It is an instrument in writing.
- It is always drawn on a particular Bank.
- It must be signed by the maker of the cheque.
- Its amount is a certain sum of money.
- It is always payable on demand.
- The payment of the cheque is always in cash.
- It is to be paid to the person named therein, or order, or the bearer.
Parties to a Cheque
The cheque includes three parties which are as under;
- Drawer or maker
The customer or account holder who writes the cheque
- Drawee
The bank on which the cheque is drawn is known a “Drawee”. The cheque is always drawn on a specified banker.
- Payee
The person who is named in the cheque for receiving payment is called “Payee”. The drawer and the payee can be the same person.
Types of Cheque
There are three important types of cheque
- Bearer Cheque
- Order cheque
- Cross Cheque
- Bearer Cheque
In these types of cheque, anyone can get the payment of the cheque on the counter without any identification. In this cheque, the phrase “or bearer” is written after the name of the payee. It is payable on demand to the bearer or to the presenter. It does not require an endorsement.
If a bearer cheque is lost, the finder can cash it, unless the bank is notified in time to stop the payment. It is not a safe method of payment. If the bearer cheque is lost or payment is made to a wrong person, the bank has no responsibility for it.
- Order Cheque
In these types of the cheque, the word “Bearer” after they pay name is crossed out and the word “order” is written instead. Then it will be an “order cheque”. The payment of said cheque is made only to the person named therein the cheque on the production of valid identification. No other person can get the payment of an order cheque.
Payment through an order cheque is a safer way because the bank is responsible for paying the money to the proper person because the receiver will have to prove his identity before receiving money. Order Cheque can be transferred to another person by the act of endorsement.
- Cross Cheque
A cheque is “crossed” by drawing two equivalent lines, across the front side of the cheque on the upper left corner and writing the word “& CO” between them. This is also known as the crossing of the cheque. Payment of such cheques is not made on the counter of the bank.
These cheques must be paid in a bank account and collected and credited through a bank. Since the payment of such cheque is not made directly, hence, it is the safest form of payment.
Other Types of Cheque
In addition to the above, the following are some other types of cheque
- Blank Cheque
A blank cheque means an “Unlimited offer” because the signatures are put, whereas all the space for the amount is left unwritten and will be filled by the drawer. Nobody ordinary signs a blank cheque.
- Open Cheque
An open cheque is that which is not crossed of the crossing is cancelled by putting the signature by the maker of technique.
- Lost Cheque
It is the cheque which is lost or stolen by a person. For a lost cheque, the bank should be immediately informed to stop the payment. But the payment is already made before receiving information, the bank will not be held responsible.
- Forged Cheque
It is the cheque, which is not issued by the actual account holder, but unlawfully by any other person or the amount is altered.
- Post-Dated Cheque
It is the cheque, which is issued, payable in a future date. Banks will not honour this cheque before due date written therein.
- Anti-Dated Cheque
In this cheque, a previous date is written at the time of issuance of the cheque. However, the cheque is payable within six months of the date.
- Overdue Cheque
The cheque which is not presented for payment within six months of the date of issuance becomes overdue cheque after the expiry of six months period. Payment of this cheque is refused by the bank.
Advantages of Cheque
Introduction of cheques has provided many advantages and facilities in every field of life. Its main advantages are given as under:
- It is an easy and convenient way of making large payment without using any cash and difficultly of counting.
- The cheque is the safest mode of payment in case of any dispute in payment, it is easy to check the record involved in payment for the rectification of any error.
- It is not only safest, but the cheapest way of making heavy payments even in the far areas of the country.
- Since the bank has full record relating all payments made through cheque, it is not necessary to keep a personal record for the same.
- It is very easy to transfer money from one place to another without any risk.
- The cheque is a transferable document; hence it can be transferred to another for payment.
- The cheque has facilitated the trade, commerce and other economic activities to a great extent. By the use of cheque, economic plans can be assisted, if the cash is not readily available.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.