What Is Cheque and Different Types Of Cheque

What is a Cheque & Different Types of Cheques

A cheque is a bill of exchange where the drawer instructs his/ her bank to pay a specified sum to the payee or anyone holding the cheque. The customers use cheques for different needs or purposes. It is important to recognise various types of cheques to understand their proper utilisation. This blog takes a look at the different types of cheques and their importance in the financial landscape.

Types of Cheques

A cheque is a frequently used mode of payment among individuals and companies. There are different types of cheques, each having specific functions.

Bearer Cheque

A bearer cheque is a type of cheque that is payable to whoever holds or presents it at the bank. It is an easy and quick way to transfer funds. You can use bearer cheques for convenient cash withdrawals or payments.

As opposed to other types of cheques, bearer cheques don’t require endorsement. However, they carry higher risks since they operate on the same principle as cash.

The security of this cheque is low, especially if it is lost or stolen because any person who possesses it can encash it. Knowledge of bearer cheques and the risks is crucial for handling financial security threats and possibilities.

Order Cheque

An order cheque is specifically in favour of a particular individual or organisation. It may contain words such as 'Pay to the order of' or 'Pay to' mentioned before the payee name.

Order cheques are for business dealings and individual payments where the drawer mentions the payee's name on the cheque. The bank validates the payee's identity before making the payment.

Order cheques can only be encashed by the payee or the payee’s authorised agent, making them a secured form of payment. This specificity makes order cheques less risky than bearer cheques.

Crossed Cheque

A crossed cheque is also called an Account Payee cheque. The issuer marks the cheque with two parallel lines at the top left corner and the text ’Account payee' between the lines. The drawer mentions the payee’s name and account number on the cheque.

Such types of cheques can only be deposited into the payee's Bank Account and cannot be encashed at the counter. This practice makes the transaction secure.

Open Cheque

An open cheque is an uncrossed cheque. It can be encashed at the counter of the bearer's bank and is transferable by the payee. Open cheques are easy targets for misuse.

So, you must be very cautious when handling open cheques to avoid fraud or theft. These cheques should only be issued when necessary with the best precautions.

Post-dated Cheque

A post-dated cheque is issued for a future date and cannot be encashed before the date specified on the cheque.

This type of cheque is issued when payment is needed at a later date. It acts as a credit instrument against non-payment. For example, a landlord may accept a cheque for rent payment at a later date or a business may issue one to a supplier for the purchase of goods and services.

Post-dated cheques are often convenient but they also have disadvantages. If the drawer’s Bank Account does not have adequate money on the given date, the cheque will bounce and incur a penalty.

Stale Cheque

A stale cheque is a cheque that has not been encashed or deposited in the account for six months or more. Depending on the bank, this timeframe can vary slightly. Banks do not accept or process stale cheques due to dishonouring or fraud risks.

Cheques should be encashed or deposited as soon as possible to prevent them from getting stale. When you receive a stale cheque, go to the issuer for a replacement. If you present a stale cheque, the bank is authorised to reject it and return it to you.

Self-Cheque

A self-cheque is marked to ‘Self’ by the issuer. The drawer uses this type of cheque to withdraw cash from the personal account or transfer money from one account to another within the same bank.

However, you should note that self-cheques are a security concern. If the cheque is lost, stolen or even misplaced, anyone can easily take advantage of the cheque and withdraw cash from the drawer's account. That is why you should handle self-cheques cautiously. 

Traveller's Cheque

A traveller’s cheque is a limited denomination cheque printed in advance. It ensures secure negotiations when travelling abroad.

These cheques can be issued in different currencies and include security features such as watermarks and dual signatures to reduce the possibility of fraud. They provide an easy means of paying ‘ready cash’ and spare people from carrying bulk cash when visiting a foreign country.

If your traveller’s cheque is lost, you can receive a replacement. Global acceptance of these cheques makes them a reliable option.

Conclusion

Knowing about different types of cheques allows individuals and proprietors to effectively choose the right type of cheque for their needs, helping them balance convenience and security.