What Is Cheque? Definition, Characteristics, Types, Parties

Many new ATMs do not use deposit envelopes and actually scan the cheque at the time it is deposited and will reject32 cheques due to handwriting incursion which interferes with reading the MICR. Terms of service for many mobile (cell phone camera) deposits also require the MICR section to be readable. Not all of the MICR characters have been printed at the time the cheque is written, as additional characters will be printed later to encode the amount; thus a sloppy signature could obscure characters that will later be printed there.

Cashier’s cheques and bank drafts

Another type is a payroll check, or paycheck, which an employer issues to compensate an employee for their work. In recent years, physical paychecks have given way to direct deposit systems and other forms of electronic transfer. Modern checks, as we know them today, became popular in the 20th century. Check usage surged in the 1950s as the check process became automated and machines were able to sort and clear checks. Check cards, first created in the 1960s, were the precursors to today’s debit cards. This was after a long period of decline in their use in favour of debit cards.

Risk of Fraud:

1. The name of the bank that holds the drawer’s account appears on the check as well.
2. A returned deposit item fee is charged when you deposit a check in your account that bounces.
3. Alternatively, cheques may be recorded with carbon paper behind each cheque, in ledger sheets between cheques or at the back of a chequebook, or in a completely separate transaction register that comes with a chequebook.
4. The issuing party is called the drawer of the cheque, and the one it is issued to is called the payee.

Cheques are order instruments, and are not in general payable simply to the bearer as bearer instruments are, but must be paid to the payee. In some countries, such as the US, the payee may endorse the cheque, allowing them to specify a third party to whom it should be paid. A written instruction to a bank or financial institution to pay a given amount from the cheque holder’s account to the bearer is known as a cheque.

The drawer initiates the payment, the drawee holds the funds, and the payee receives the payment. A self cheque is a type of cheque written by the account holder and payable to themselves. An order cheque is payable only to a specific person or organization mentioned on the cheque as the payee. The bearer cheque is payable to the person who holds or “bears” the cheque.

In Conclusion: Cheques’ Enduring Legacy

In most European countries, cheques are now rarely used or have been completely phased out, even for third party payments except for the United Kingdom, France and Ireland. In most western European countries, it was standard practice for businesses to publish their bank details on invoices, to facilitate the receipt of payments by giro. In using a cheque, the onus is on the payee to initiate the payment, whereas with a giro transfer, the onus is on the payer to effect the payment. In the ninth century, a merchant in one country could cash a sakk drawn on his bank in another country.16 The Persian poet, Ferdowsi, used the term “cheque” several times in his famous book, Shahnameh, when referring to the Sasanid dynasty. It is important to keep track of the details of the cheques that you have written, including the payee and the amount paid.

One can strike two parallel lines across a cheque and write the term “CANCELLED” to know how to cancel a cheque. Since all your primary bank account details are present in a cheque (such as MICR code, branch address and name, name of the account holder, and account number), it aids the auditor to verify these details. To know what is cancelled cheque is, all one needs to do is verify whether the cheque has “CANCELLED” written across it along with two parallel lines. Crossed cheques provide a secure way to transfer funds as they require the payee to have a bank account. People can use a post-dated what is a cheque cheque for future payments, loan repayments, or to secure a transaction while ensuring the availability of funds at the specified time. It carries a future date, meaning it cannot be cashed until that specific date arrives.

If the cheque is crossed with the words ‘Account Payee’ or similar then the cheque can only be paid into the bank account of the person initially named as the payee, thus it cannot be endorsed to a different payee. In the US, the bottom 5⁄8-inch (16 mm)30 of the cheque is reserved for MICR characters only. Intrusion into the MICR area can cause problems when the cheque runs through the clearinghouse, requiring someone to print an MICR cheque correction strip31 and glue it to the cheque.