What is a Cheque – Definition, Types of Cheque and Features

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
• Self Cheque
• Blank Cheque
• Banker’s Cheque
• Cancelled Cheque
• Travelers Cheque
• Gift 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.

Order Cheque

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.

Stale Cheque

A Cheque turns stale after three months of the date written on cheque. A Stale Cheque can not be honored by the bank.

Mutilated Cheque

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.

Self Cheque

The Cheque in which ‘self’ is written at the name of payee is known as Self Cheque. A person can withdraw money from his own account using self cheque. Such type of Cheque should not be crossed and ‘or bearer’ not to be stricken off. Any person either you or anyone else can withdraw the money using self cheque.

Blank Cheque

Blank Cheque is a cheque which is only signed but payee name, amount and date is not written. Such cheques are risky, must be kept in safe custody. As in case if blank cheque lost, anyone who find may write any amount and withdraw money from your account fraudulently.

Banker’s Cheque

Banker’s Cheque, also known as pay order is non-negotiable instrument issued by bank on behalf of the customer. It contains an order to pay a specified sum to the specified person in the same city.

Cancelled Cheque

A Cancelled Cheque refer to any cheque that has strike marks on it with word ‘cancelled’ written across. Such types of cheque are generally used to set up an ECS service from the account. It act as proof that you own a bank account. They are also used to open demat account, purchasing insurance policy, withdraw fund from EPF account etc. A cancelled cheque need not to be signed.

Travelers Cheque

A travelers cheque is a cheque issued  by bank or financial institution that can be used as form of payment. It is used for making payment in foreign country, after being endorsed by signature of the holder. Travelers cheques are  issued in various monetary denominations – USD, EURO, Japanese Yen, CAD, AUD etc.

Gift Cheque

Cheque issued in decorative form for a fee by banks for customer who want to use for the purpose of gifts or prize on special occasion. They are usually large in size. Cheque includes both electronic image of a truncated cheque and a cheque in electronic mode.