What is a Cheque?
“Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of the certain person or to the bearer of the instrument.” The various types of cheque will be explained here.
There are three parties related to the cheque as:
- Drawer is a person who presents the cheque to someone to settle the payment.
- Payee is a person on whose name payment is being done.
- Drawee is the bank which will settle the payment on behalf of the drawer.
Let I have an account with the State Bank of India and you have an account with the Punjab National Bank. If I give a cheque to you to pay some amount, then here I am the drawer, you are the payee and the State Bank of India is drawee. Then to encash the cheque you submit it into PNB (presenting bank branch), your bank will send a scanned copy of the cheque to the clearinghouse managed by the Reserve Bank of India and then it will further transfer it to SBI (drawee bank branch). After verification, the drawee bank branch will send the amount mentioned on the cheque to presenting branch and finally, a payment will be done in your account. The presenting bank branch will keep the physical cheque will itself.
Types of Cheque
A cheque generally has a validity of three months. It can be classified as per the type and in many ways but a general classification is shown in the figure and elaborated below.
When the words “or bearer” appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.
When the word “bearer” appearing on the face of a cheque is cancelled and when in its place the word “or order” is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to anyone else to whom it is endorsed (transferred).
Open Cheque or Uncrossed Cheque
When a cheque is not crossed, it is known as an “Open Cheque” or an “Uncrossed Cheque”. The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.
The crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like “& CO.” or “Account Payee” or “Not Negotiable”. A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee’s account.
Anti Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as “anti-dated cheque”. Such a cheque is valid up to three months from the date of the cheque.
Post Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as a post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
If a cheque is presented for payment after three months from the date of the cheque it is called a stale cheque. A stale cheque is not honoured by the bank.
Click here to read about Different types of Bank Accounts.