What is a Cheque?
A cheque is a written order by the drawer (debtor) to a drawee (bank) to pay a specific sum, on demand, to a named person (the payee).
Types of Cheque
- Open cheque: has no crossing, so it can be cashed by whoever holds it. A bearer cheque can be cashed by anyone with no formalities, while an order cheque names the payee, who must present ID to collect payment.
- Crossed cheque: has parallel lines drawn across its face, making it safer, since it can only be paid into a bank account and can be traced if a mistake is made.
- Certified/marked cheque: confirmed by the bank as having sufficient funds, used when a creditor doubts the debtor’s cheque.
- Non-negotiable cheque: carries a warning that it should not be paid to anyone except the named payee.
- Dishonoured cheque: refused by the bank, marked “R/D” (return to drawer) — this can happen if the payee’s name is wrong, the amount exceeds the account balance (“rubber cheque”), the cheque is presented after roughly 6 months (stale), the account holder has died, the figures and words don’t match, the drawer is insane, or payment has been stopped.
Types of Crossing
- General crossing: parallel lines, often with “not negotiable” or “& Co” written between them. If nothing (or just “& Co”) is written, the cheque can still be negotiated, similar to an open cheque.
- Special crossing: the name of a specific bank is written across the cheque, so it can only be presented at that bank.
Advantages of Using Cheques
More convenient and secure to carry than cash, numbered and traceable, helps keep accounting records, can be made out for any amount, easy to stop if lost, and can act as a receipt.
