What is a Cheque – Types, Features, Chequebook, Advantages

Cheques, cheques, what’s the big deal, right? They’re those little pieces of paper people deposit, and transactions happen. Simple, right? Well, cheques are more than just a mundane financial instrument; they’re a testament to the evolution of humanity itself. You see, my curious friend, the history of cheques dates back to the 13th century, and it’s a story that has shaped your very existence. 

So, picture this: someone randomly asks you, “What is a cheque?”. But you don’t know the answer. So, you find yourself stammering and lost for words. It’s not just your reputation at stake; it’s the struggles of all humankind! But worry not. We’re here to rescue you from the embarrassment. Stay tuned till the end to know all about cheques. 

What is a Cheque?

Cheque is a written instrument that serves as a substitute for cash. It is a negotiable instrument, instructing the bank to pay a specific amount from the drawer’s account to a designated payee. 

Cheques provide a convenient and secure way to:

• Transfer funds.
• Make payments.
• Settle debts between individuals and businesses.

Types of Cheque

Knowing what a cheque is is not enough. You must know about its various types to fully understand the dynamics of cheques. Here are some of the types of cheques which you should be aware of:

1. Bearer Cheque

The bearer cheque is payable to the person who holds or “bears” the cheque. It is a form of open instrument, and whoever possesses it can encash it.

2. Order Cheque

An order cheque is payable only to a specific person or organization mentioned on the cheque as the payee. It requires endorsement by the payee to be encashed.

3. Crossed Cheque

Crossed cheque has two parallel lines across its face. These lines are drawn to indicate that the cheque must be deposited directly into the payee’s bank account. It also disables the check to be encashed over the counter. 

Sorry, folks, no loopholes here!

4. Open Cheque

An open cheque is not crossed or specified as a bearer or order cheque. It is payable to the person presenting it and can be encashed over the counter.

5. Post-Dated Cheque

Post-dated cheques carry an upcoming date as the payment date. It becomes valid for encashment only on or after that date.

6. Stale Cheque

Just like that forgotten sandwich in the back of your fridge, cheques have an expiration date.

An expired cheque is called a stale cheque. So, remember, presenting stale cheques after their due date will leave you with nothing but disappointment.

7. Traveler’s Cheque

When Adventure calls, this cheque answers.

A traveler’s cheque is a pre-printed fixed-amount cheque. It is designed to be used while traveling. It also serves as a safer and more convenient alternative to carrying cash. 

8. Self Cheque

A self cheque is a type of cheque written by the account holder and payable to themselves. It allows you to withdraw cash from your account. 

It’s like a gift from you to yourself.

Features of Cheque

Here are certain features of a cheque:

1. Issued by Individuals

A bank cheque can be issued by individuals who hold a savings or current account. It provides them with a convenient payment method.

2. Fixed Amount 

The amount written on the cheque cannot be changed later on. It provides a secure means of transferring a specific sum of money to the payee.

3. Formal Order of Payment

A cheque is an unconditional order and not a request to the bank. It represents a legally binding instruction to the bank to make the specified payment.

4. Validity and Authorization

The cheque is valid only when signed and dated. Unsigned cheques are considered invalid and cannot be honored by the bank.

5. MICR Code

Magnetic Ink Character Recognition (MICR) code is present at the bottom of the cheque. It facilitates automated processing by banks.

How to Write a Cheque?

Writing a cheque involves several steps to ensure accuracy and legitimacy. Don’t panic! Let’s take baby steps:

But before that, here’s some advice for you,

Always keep your chequebook with you (it will come in handy in such cases.)

Step 1. Write the Date on the Cheque

Write the date on the line provided in the upper-right corner of the bank cheque. You must fill in the date in the standard format, like “DD/MM/YYYY.”

Step 2.  Fill in the Payee’s Name

Can you see the line that says “Pay”? Write the full name of the organization or person to whom the payment is directed.

Step 3. Write the Amount in Numbers

Now, write the payment amount in numbers against the line with the dollar symbol ($). If applicable, you must also include cents in decimals.

Step 4. Write the Amount in Words

In the line below the payee’s name, write the amount in words. You must start with the dollar amount and then mention the cents as a fraction over 100.

Step 5. Add a Memo

If you want, you may add a brief memo or note in the designated section of the cheque. A memo is generally added to indicate the purpose of the payment or provide additional information.

Step 6. Sign the Cheque

At the lower-right corner of the cheque, sign your name using your signature. Remember to use the one registered for your bank account. Signing validates the cheque and confirms its authenticity.

And, Voila! Your masterpiece is complete.

Parties to Cheque

There are three main parties involved in a bank cheque transaction:

1. Drawer

The drawer is the person who writes and signs the cheque, issuing the payment instruction. The drawer is typically the account holder who authorizes the payment from their bank account.

2. Payee

The payee is the person or organization named on the cheque to receive the payment. The payee is the intended recipient of the funds specified by the drawer.

3. Drawee

The drawee is the bank or financial institution on which the bank cheque is drawn. The drawee is responsible for paying the payee as instructed by the drawer.

These parties collectively form the foundation of a cheque transaction. The drawer initiates the payment, the drawee holds the funds, and the payee receives the payment.

Advantages and Disadvantages of Writing a Cheque

Like a coin, a cheque also has two faces. It has both advantages and disadvantages. So let’s have a look at the table below:

Advantages	Disadvantages
Cheques provide a convenient mode of payment that is widely accepted by individuals, businesses, and institutions. They offer a tangible form of payment that can be easily handed over or mailed.	Cheques require a certain amount of time for clearance and processing. The recipient must deposit the cheque to the bank for verification and settlement. This process can thus lead to delays in accessing the funds.
With a cheque, you have the flexibility to issue post-dated payments. This means you can write a cheque today but specify a future date for the recipient to deposit or cash it. It allows you to plan and manage your payments effectively.	Cheques can be susceptible to fraudulent alterations or forgery if proper security measures are not in place. It’s essential to be cautious and ensure that cheques are filled out accurately, securely delivered, and kept in a safe place.
Cheques can be used for various types of transactions, including paying bills, settling debts, making business payments, and more. They offer a versatile method of payment that can accommodate different financial needs.	Writing cheques relies on the availability and efficiency of the banking system, including factors such as clearing times and processing delays. These factors further impact the speed of transactions.

The Key Takeaway

While digital payment methods dominate today’s financial landscape, cheques remain a valuable tool for certain transactions. Thus, properly understanding cheques equips you with the necessary skills to navigate the financial world effectively. So, we hope that you understand the value of these little pieces of paper by now.

And now, it’s time for us to part ways!

Now,  you did not think we would go without giving you a gift, did you?

No matter what you have to do with a cheque, always handle it with care.!

FAQs on What is a Cheque

Q1: Are Cheques Still Widely Used Today?

Many businesses and individuals continue to use cheques for specific transactions due to the wide acceptability and lack of understanding of the latest technology.

Q2: Can I Write a Post-Dated Cheque?

Yes, you can write a post-dated cheque by specifying a future date as the payment date. 

Q3: How to Correct a Mistake While Writing a Cheque?

If you make a mistake while writing a cheque, do not use correction fluids or overwrite. Instead, mark the cheque as void, tear it up, and start fresh with a new cheque.

Q4: Can Anyone Encash a Bearer Cheque?

Yes, bearer cheques are payable to the person who holds or “bears” the cheque. They can be encashed by anyone in possession of the cheque, so it is essential to keep them secure.