A cheque is a document given to a bank with instructions to pay the specified sum to a person or an entity.
What exactly does "cheque" mean?
Cheques are written, dated, and signed instructions given to a bank to pay the bearer a specified sum of money. The drawer or payor is the individual or entity who writes the cheque. At the same time, the cheque recipient is referred to as the payee. The banks on which cheques are drawn are known as the drawee.
How does the cheque function?
-
Cheques guarantee a specified sum of money which the payor utilizes to pay the account holder after receiving it from the drawing bank. Payor issues cheques, which payees consent to and bring to their bank or another financial institution to exchange for cash or transfer directly into the bank account.
-
Two or more parties can undertake a financial transaction using a cheque without transferring actual money. Instead, the amount on the cheque serves as a replacement for the equivalent amount in real money.
-
Cheques can be withdrawn in cash or deposited directly in the bank account. The money is withdrawn from the payor's bank account when the payee submits a cheque to a bank or other financial institution for negotiation. Cheques can be used to request money from a savings account or different sort of account, although they are commonly written against a checking account.
-
Cheques can be used to transfer money between two individuals or entities, pay bills and make gifts. A third party cannot withdraw cash from a misplaced or stolen cheque since only the payee has the authority to do so. Modern cheque alternatives include wire transfers, credit cards, debit cards, and internet banking.
Benefits of the Cheque
-
There's no need to carry cash.
-
Payments can be halted if necessary.
-
Transferring through cheques makes them more secure.
-
Since physical notes are not used, errors are unlikely to happen
Characteristics of the Cheque
-
The drawer must adequately write a cheque and sign it.
-
A cheque contains an unconditional order.
-
Only one bank is authorized to receive cheques.
-
The defined amount should always be specified and indicated in words and numbers.
-
There is always a specific payee on cheques.
-
Cheques are always due upon demand.
-
A cheque must be dated for the bank to accept; otherwise, it will be invalid.
Types of cheques
Links :
https://www.idfcfirstbank.com/finfirst-blogs/finance/types-of-cheques
