Meaning of Cheque – Different Types of Cheque : Cheque is a negotiable instrument used to make payment in day to day business transaction minimizing the risk and possibility of loss. It is used by individuals, businesses, corporate and others to transact for making and receiving payment.
Definition of Cheque – What is a Cheque ?
As per negotiable instrument act 1881, A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
There are three parties in Cheque Transaction – Drawer, Drawee and Payee.
- Drawer (Maker of Cheque) – The person who issue the cheque or hold the account with bank.
- Drawee – The Person who is directed to make the payment against cheque. In case of cheque, it is bank.
- Payee – A person whose name is mentioned in the cheque or to whom the drawee makes payment. If drawer has drawn the cheque in favour of self then drawer is payee.
Payment by Cheque is safest way to conduct business transactions as it helps to maintain record in account statement to whom the payment is made by whom payment is received. So it becomes easier to track the transactions through bank account statement.
Different Types of Cheque
There may be different types of Cheques depending on how the drawer has issued the Cheque.
- Open / Bearer Cheque
- Order Cheque
- Crossed Cheque
- Anti Dated Cheque
- Post Dated Cheque
- Stale Cheque
- Mutilated Cheque
Here we will discuss about different types of cheque with their features in detail :
Open / Bearer Cheque
This type of Cheques are risky in nature for drawer. When the word “Bearer” on the cheque is not crossed or cancelled, the cheque is called a bearer cheque. Open / Bearer Cheques are payable to person specified in the instrument or any person who posses it and present for payment over the counter. In case of cheque is lost, person who find it can collect payment from the bank.
When the word “Bearer” written on cheque is crossed or cancelled it becomes an order cheque. An order Cheque is payable to a specified person named in the cheque or any other to whom it is endorsed.
Crossed Cheque or Account Payee Cheque
The person who issue or write the cheque specify its as account payee by simply making two parallel lines on top left or middle or right hand corner of the cheque. This type of cheque can not be encashed over the counter. Considered as safest type of cheque, it can only be credited to payee’s account whose name is mentioned in the Cheque.
Anti Dated Cheque
Cheque bearing the date earlier than the date of presentation for payment is known as anti dated cheque.
Note : All Types of Cheque are valid for three month from the date of issue (or written on cheque).
Post Dated Cheque
Cheque bearing the date which is yet to come in future is called Post Dated Cheque. Cheque is honored only on or after the date (upto three months) written on cheque.
A Cheque turns stale after three months of the date written on cheque. A Stale Cheque can not be honored by the bank.
When cheque gets torn into two or more pieces and presented in bank for payment. Such cheques are called mutilated cheque. Bank requires confirmation by the drawer before honoring such cheques.