What is Cheque? Understand 10 Different Types of Cheques

A cheque is a document that tells your bank to transfer the mentioned amount to a person or organisation. There are mainly ten types of cheques in India that you should know about. Cheques are a fundamental part of banking in India, offering a secure and efficient way to transfer funds. Understanding the different types of cheques can help you manage your finances better and ensure you’re using the right one for your needs. Since cheques include significant personal information (name, account number, signature and in some countries driver’s license number, the address or phone number of the account holder), they can be used for identity theft.

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1. In the United Kingdom a memo line is not available and such notes may be written on the reverse side of the cheque.
2. At that time, several countries took the opportunity to phase out the use of cheques altogether.
3. • Sometimes, banks may deny cheque processing for a few reasons, such as low account.balances, signature mismatch and more because they are not legal tenders.

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However, countries including the US and members of the British Commonwealth did not participate and so it remained very difficult for cheques to be used across country borders. It is a cheque that has been torn or damaged to the point where it is no longer legible or cannot be processed by a bank. When travelling, a traveller’s cheque is used to prevent carrying large quantities of cash and to ensure more safety and security. It can be used to purchase foreign currency when travelling overseas. Write the full name of the organization or person to whom the payment is directed. The drawer or the cheque holder has the authority to sign the cheque.

Mutilated cheques:

The scheme is managed by the Cheque and Credit Clearing Company and requires that all cheques for use in the British clearing process are produced by accredited printers who have adopted stringent security standards. The Australian Cheques Act 1986 is the body of law governing the issuance of cheques and payment orders in Australia. Procedural and practical issues governing the clearance of cheques and payment orders are handled by Australian Payments Clearing Association (APCA). Cheques provide a convenient mode of payment that is widely accepted by individuals, businesses, and institutions.

Things to know before writing a cheque

It provides a secure means of transferring a specific sum of money to the payee. 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. Yes, a cheque can be used instead of cash payment if the merchant or the shop accepts cheque payments.

Unlike transactions with cash, which can be lost or stolen, cheques are linked to the user’s bank account and can be easily traced and authenticated. This makes them a popular choice for transactions of all sizes. Banks take utmost care what is a cheque when processing cheque transactions for security reasons. The following are the important things to keep in mind while writing a cheque.

A cheque used to pay wages may be referred to as a payroll cheque. Even when the use of cheques for paying wages and salaries became rare, the vocabulary “pay cheque” still remained commonly used to describe the payment of wages and salaries. Payroll cheques issued by the military to soldiers, or by some other government entities to their employees, beneficiants, and creditors, are referred to as warrants.

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Usually, the banks take 1-2 business days to process and clear the cheque payment. The time may increase depending on the day of the week since it is a manual clearing process. There are certain situations in which the bank may refuse to process the cheque payments, such as those mentioned below. • Cheques are issued only to account holders, so anyone who wishes to use cheques first must open a bank account. • Sometimes, banks may deny cheque processing for a few reasons, such as low account.balances, signature mismatch and more because they are not legal tenders. A cheque older than 6 months is called a stale cheque however, they are still valid and can be used for transactions.

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Open chequeAn open cheque is a cheque that is not crossed and can be cashed at any bank, not just the issuing bank. If an account owner bounces two cheques in six months, the bank will suspend the account for two years. If the account belongs to a public company, their stock will also be suspended from trading on the stock exchange, which can lead to bankruptcy. In 2002, the Eurocheque system was phased out and replaced with domestic clearing systems. Old Eurocheques could still be used, but they were now processed by national clearing systems. At that time, several countries took the opportunity to phase out the use of cheques altogether.

Not all of the MICR characters have been printed at the time the cheque is written, as additional characters will be printed later to encode the amount; thus a sloppy signature could obscure characters that will later be printed there. An issue date was added, and cheques may become invalid a certain amount of time after issue. In the US and Canada,[27][28] a cheque is typically valid for six months after the date of issue, after which it is a stale-dated cheque, but this depends on where the cheque is drawn. In Australia, a cheque is typically valid for fifteen months of the cheque date.[29] A cheque that has an issue date in the future, a post-dated cheque, may not be able to be presented until that date has passed. In some countries writing a post dated cheque may simply be ignored or is illegal. Conversely, an antedated cheque has an issue date in the past.

The only methods generally available for individuals and small businesses to make payments electronically are electronic funds transfers (EFT) or accepting credit cards. Generally, payments by cheque (as long as the payer has funds in their account) and the recipient deposits it to their bank account, regardless of amount, have a service charge to both parties of zero. A payee that accepts a cheque will typically deposit it in an account at the payee’s bank, and have the bank process the cheque. In some cases, the payee will take the cheque to a branch of the drawee bank, and cash the cheque there. If a cheque is refused at the drawee bank (or the drawee bank returns the cheque to the bank that it was deposited at) because there are insufficient funds for the cheque to clear, it is said that the cheque has been dishonoured.

Banker’s chequeA banker’s cheque is issued by the bank itself, guaranteeing the payment. It is typically used for high-value transactions and payments where certainty is required. In Scotland, a cheque acts as an assignment of the amount of money to the payee.