Wednesday, June 22, 2016

Different types of cheques in India

A cheque is a payment instrument that is issued by a bank account holder for making payments to an individual or company and cash withdrawals from the bank. Apart from that, it also facilitates funds transfer to another bank account. For instance, you can make cash payment for a utility bill or you can do it by writing a cheque. The biggest benefit of a cheque is that it allows high value transactions which may become a bit cumbersome if hard cash was used instead.


The following details are necessary in a cheque –

A cheque must be drawn upon a specified bank (Drawee).A cheque must be signed by the person (Drawer) issuing the cheque.A cheque must have the name of the recepient (Payee) of the cheque.A cheque must mention the amount of money in words and figures.A cheque must be dated.

Classification of Cheques:

A cheque is one of the safest modes of making payment as there is an entry against the cheque honoured by the bank that can be traced back if needed.

Based on the location, cheques are classified as: –

Local cheques:

If issued by a bank in the same city as the payee.

 Outstation cheques:

If a given city’s local cheque is presented elsewhere it becomes an outstation cheque and may attract some nominal but fixed banking charges.

 At par cheque:

is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can be present across the country without attracting additional banking charges.

Based on its value, cheques are classified as: –

Normal Value cheques:

Cheques below the amount of Rs. 1 lakh are called normal value cheques.

High Value cheques:

Cheque bearing an amount higher than Rs. 1 lakh is a high value cheque.

Gift cheques:

Cheques used for gifting money to loved ones are gift cheques. The value may vary from Rs. 100 to Rs. 10,000.

Cheques are mainly of four types:-

1) Open cheque:

A cheque is called open when it is possible to get cash over the counter at the bank. The holder of an open cheque can receive payment over the counter at the bank, deposit the cheque in his own account or pass it to someone else by signing on the back of a cheque.

2) Bearer cheque:

A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. A bearer cheque can be transferred by mere delivery and requires no endorsement.

3) Order cheque:

It is the one which is payable to a particular person. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.

4) Crossed cheque:

When a cheque is crossed, the holder cannot encash it at the counter of the bank. The payment of such cheque is only credited to the bank account of the payee. Crossed cheque is done by drawing two parallel lines across top left corner of the cheque, with or without writing ‘Account payee’ in the space between the lines.

Banks also offer various cheques which guarantee payments.

A self cheque:

is written by the account holder as pay self to receive money in physical form from the branch where he holds his account. This can be alternated by using an ATM card.

Post-dated cheque (PDC):

A PDC is a form of a crossed or account payee bearer cheque but post-dated to meet the said financial payment at a future date. The cheque is valid from the date of issue to three months.

A Banker’s cheque:

A banker’s cheque is issued by a bank drawing money from its own funds rather than that from an account holder’s. Banker’s cheque is issued after the bank verifies the account status of the requestor and the amount is immediately deducted from the customer’s account.  A banker’s cheque cannot be dishonored as in the case of a normal cheque, when an account holder has insufficient funds in his/her account. Though different from a normal cheque it requires clearing too.

A Traveller’s cheque:

It is a printed open type cheque issued as an alternate for carrying around cash while travelling abroad or on a vacation to a foreign country as they come with a replacement guarantee and lifelong validity. Traveler’s cheques are widely accepted by merchants, restaurants and other recreational organizations. The unused cheques from the recent trip can be used for your next trip.

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