CHEQUES, TYPES OF CHEQUES AND THEIR FEATURES. Cheques, what is a cheque? The Bill of Exchange Act defines a cheque as: “A bill of exchange drawn on a banker payable on demand.” N
what are cheques?
In other words, a cheque is an order written by the drawer to a bank to pay on demand —- read more of demand and supply here—- a specified sum of money to the person named as a payee on the cheque.
To complete a cheque, the drawer inserts the name of the payee, the amount he is to be paid in words and figures, date and signature.
Differences between a cheque and a banknote
A cheque is an instrument in writing made upon a bank to pay a given sum of money to a named person or bearer, at a specific date,
whereas bank notes are legal tenders that is, notes issued by the central bank to be legally used as means of payment for goods and services.
Features or characteristics of a cheque
A cheque is an order to pay
It an unconditional order
The amount must be specified
It must be in writing and not paid
The account number of the drawer is stated
The name and branch of the bank appear on the cheque
It is addressed by one person to another
The name of the payee must be shown on the cheque
Stamp duty is paid on a cheque
Amount must be clearly written in words and figures. ![\"strategies](\"https://fabioclass.com/wp-content/uploads/2021/12/Screenshot_20210724-142927-e1652661728356.png\")
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Advantages of payment by cheque
Convenience: It is more convenient to carry cheques than cash.
Safe means of payment: Cheque is a safe means of payment, especially when it is crossed, and the risk of loss is eliminated.
Proof of payment: Cheque can serve as a receipt and proof of payment.
It saves time and energy: Using a cheque to pay large sums of money saves time and energy of counting the cash.
It helps to economize: Cheque can help to economize the use of currency notes and coins.
Security: It is safer to carry cheque than cash for security reasons. ![\"economic](\"https://fabioclass.com/wp-content/uploads/2021/12/FB_IMG_16196812693040958-e1645520237348.jpg\")
For record purposes: The drawer uses the counter foil for proper record keeping of payments and receipts.
Easy to stop payment: It is very easy for the drawer to stop payment to prevent fraud.
Precautionary measures to be taken when drawing a cheque
The signature must be consistent.
The drawer must sign any alteration on the cheque.
The cheque must not be folded.
The amount must be written in figures and words.
The name of the payee should be properly written on the cheque.
The signature must be such that it cannot be easily forged.
Parties to a cheque
There are three major parties to a cheque. These are:
- Drawer: Drawer is the person responsible for drawing a cheque. He is the owner of the account on which the cheque is drawn. The drawer is the debtor who signs the cheque and orders the bank to pay his creditor.
- Drawee: Drawee is the bank on which the cheque is drawn, i.e. the bank where the cheque will be presented for payment.
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- Payee: The payee is the person to whom the cheque is made payable, i.e. the person to whom payment is directed to be made. The payee is usually a creditor to the drawer and must present the cheque to the drawee for settlement.
- For example, if Mr Okafor writes a cheque to Mr. onyeka to be drawn from Zenith Bank Plc., in this transaction, Mr Okafor is the drawer and Mr. onyeka is the payee while Zenith Bank Plc. Is the drawee.
TYPES OF CHEQUES
- Order cheque: An order cheque is made payable to a person or firm named on it, or an order which requires the endorsement of the payee unless he pays it into his own bank account. A cheque that is drawn payable to the payee or to order can only be cashed by the payee. The payee can endorse it to another person and this turns it into a bearer cheque.
- Bearer Cheque: Bearer cheque is payable to the bearer i.e. whoever presents it. The bearer cheques us payable without any endorsement. It can be cashed over the counter without having to be endorsed by the person presenting it.
- Open cheque: Open cheques can be presented and cashed over the counter of the bank where it is drawn. The open cheque is not crossed. It is used for drawing cash from the bank paying creditors who have no current account. This is risky because it can be paid to the wrong person.
- Crossed cheque: This is a cheque having two parallel lines drawn across its face. Crossed cheques cannot be cashed at the counter; they must be paid into a current account. Some words may be written between parallel lines, e.g. “ & Co” or “Non-negotiable”. This helps to prevent fraudulent practices.
Forms of crossing a cheque
There are several types of crossing which can be used to place restrictions on the negotiability of a cheque. They are:
- General crossing: General crossing is a form of crossing in which two parallel transverse lines are drawn across the face of the cheque with or without the addition of the words “& Co” or “Non- negotiable”. This type of crossing prevents payments over the counter. The cheque can only be paid into a current account. There is no bank name on it.
- Special crossing: In special crossing, the name of a bank is inserted between the transverse lines. This restricts payment to a specifically named bank. The effect is to make the cheque payable only to the banker specified in the crossing. It is a« precautionary measure to make a cheque safer.
Other forms of special crossing
- Non-negotiable: Non-negotiable is another form of special crossing in which the cheque cannot be paid to any person except the bearer of the name on the cheque. This phrase will deprive the cheque of its negotiability, i.e. prevents its further transfer. It is added to protect the owner against thieves.
- A/C payee only: A/C payee only is a directive to the bank that the proceeds of the cheque are to be paid only into the account of the person or firm named on the cheque, i.e. the payee.
Any cheque with this form of crossing cannot be negotiated or transferred by endorsement to another person. It operates as notice to the collecting bank that only the account of the payee is to be credited.
Reasons for crossing a cheque
- It protects the owner against damage by loss or theft.
- It prevents the cheque from being paid over the counter.
- Crossing restricts a cheque to a particular bank.
- The holder of a crossed cheque must pay it to his account.
- It can help in tracing the culprit in case the cheque is stolen.
OTHER FORMS OF CHEQUES
- Stale cheque: Stale cheque is the type of cheque which has been in circulation for an unreasonable long period of time, hence the date of presentation for payment has expired. The bank will refuse to honour a cheque that is more than six months old because it is considered expired.
- Post-dated cheque: Post-dated cheques are cheques that bear a date later than the current date on which they are drawn, i.e. it is dated for some future time. Such a cheque cannot be cashed before the proper date.
- Dishonoured cheque: A dishonoured cheque is one which a banker, for some reason has refused to pay on presentation. Such cheques generally have some explanatory phrase written on them
stating the reason why such cheques cannot be paid or honoured.
Reasons for dishonouring a cheque
- Insufficient funds: A cheque can be dishonoured for lack of sufficient funds in
the account. - Irregular signature: A cheque will not be honoured if the signature is not regular.
- Difference in figures and words: If the figures and the words on the cheque do
not agree, the cheque will be rejected. - No date: A cheque can be dishonoured if there is no date on it.
- Bankruptcy: If the bank receives notice of default of drawer, It will reject the cheque.
- Alteration of the cheque: If alteration on the cheque is not signed against by the drawer, the bank will not honour it.
Mutilation of the cheque: When the cheque is mutilated, it will be dishonoured
- Stoppage of payment: If payment is stopped by the drawer, the cheque will not be honoured
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- Stale cheque: A cheque that has expired will be dishonoured.
- Certified cheque: A certified cheque is a cheque which has been ratified by the bank in order to guarantee that the drawer has sufficient funds in the account to settle the debt. A bank also ratifies a cheque in order to authenticate it.
Here are 20 FAQs related to cheques, types of cheques, and more:
Q: What is a cheque?
A: A cheque is a written order that instructs a bank to pay a specific amount of money from the account holder’s account to the person or organization named on the cheque.
Q: What are the different types of cheques?
A: There are several types of cheques, including bearer cheques, order cheques, crossed cheques, open cheques, post-dated cheques, and stale cheques.
Q: What is a bearer cheque?
A: A bearer cheque is a cheque that can be encashed by anyone who presents it to the bank, without the need for identification.
Q: What is an order cheque?
A: An order cheque is a cheque that can only be encashed by the person or organization named on the cheque.
Q: What is a crossed cheque?
A: A crossed cheque is a cheque that has two parallel lines drawn across its face, indicating that it can only be deposited into the account of the payee.
Q: Can I cancel a cheque?
A: Yes, you can cancel a cheque by writing “VOID” or “CANCELLED” across its face and signing it. However, if the cheque has already been presented to the bank, you may need to contact the bank to stop payment.
Q: What is a post-dated cheque?
A: A post-dated cheque is a cheque that is dated for a future date, and the bank will not honor it until that date.
Q: Can I write a cheque in pencil?
A: No, cheques should be written in ink to prevent alterations. Pencil-written cheques may not be accepted by banks.
Q: How long is a cheque valid?
A: In most countries, a cheque is valid for 3-6 months from the date of issue. After that, it may be considered stale and not honored by the bank.
Q: What is a stale cheque?
A: A stale cheque is a cheque that is presented to the bank after a certain period (usually 3-6 months) has passed since its date of issue.
Q: Can I deposit a cheque into someone else’s account?
A: Generally, no. Cheques are typically payable to a specific person or organization, and depositing a cheque into someone else’s account may not be allowed.
Q: How do I fill out a cheque?
A: To fill out a cheque, you need to write the date, payee’s name, amount in numbers and words, and your signature.
Q: What is the difference between a cheque and a demand draft?
A: A cheque is a written order to a bank to pay a specific amount, while a demand draft is a prepaid instrument that guarantees payment.
Q: Can I use a cheque to pay bills online?
A: Some online bill payment systems may accept cheques, but it’s not a common practice. Most online bill payments are made through electronic funds transfer or credit/debit cards.
Q: How long does it take for a cheque to clear?
A: The time it takes for a cheque to clear varies depending on the bank and the type of account. It can take anywhere from a few hours to several days.
Q: What happens if a cheque bounces?
A: If a cheque bounces, the bank will return it to the depositor, and the account holder may be charged a fee. The account holder should ensure they have sufficient funds in their account to cover the cheque.
Q: Can I write a cheque to myself?
A: Yes, you can write a cheque to yourself, but it’s not a common practice. You can use other methods like ATM withdrawals or online transfers to access your funds.
Q: How do I track a cheque?
A: You can track a cheque by contacting your bank’s customer service or using online banking to check the status of the cheque.
Q: What is cheque truncation?
A: Cheque truncation is a process where the physical cheque is stopped at some point in the clearing process, and an electronic image of the cheque is transmitted to the paying bank.
Q: Are cheques still relevant in the digital age?
A: While digital payment methods have become more popular, cheques are still widely used for certain transactions, such as business-to-business payments, rent payments, and charitable donations.
Originally posted 2025-07-31 12:55:40.