At some point or the other, each of us has come to face a situation where we felt the need to transact using a cheque, instead of hard cash. The modern times are evolving and changing each day and bringing newer and faster modes of transactions for us. Although, the evolution of a cheque can be dated back to a few more years back from now, paying through a cheque or receiving a payment through a cheque, continues to remain a popular and prestigious mode of transaction even during these times. It is popularly observed that when someone has to be rewarded for some amount of money, they are presented with a cheque instead of hard cash, which has always been looked upon with respect.
What is a cheque?
In simple terms, a cheque is a replacement for hard cash in paper form, which can be exchanged between two parties, just as cash would have been exchanged, to settle the obligation of one party to another. It is also referred to as an electronic mode of transaction and can be easily deposited in a bank to withdraw funds in its place. A cheque needs to be filled with certain details about the payer and the payee, which should be accurate and complete in all respects, for the cheque to remain valid. A cheque is normally valid for a period of three months, before it lapses and is rendered useless. The presenting party should ensure that the cheque received by them is presented before the bank within the due period.
Components of a cheque
Ideally, one would find the following details on any bank’s cheque:
- Date: It is the date on which the cheque is issued. Remember that a cheque is valid only up to a period of three months from this date.
- Pay: The name of the person or the entity, to whom a payment is being made.
- Or bearer: If the cheque is not to be paid to a specific person but simply to anyone holding the cheque, these words can be left non-stricken at the end.
- Rupees: The amount of money that is being paid to the party.
- Amount in numbers: The amount which is being paid, should be written in numbers.
- Account number: This is pre printed on the cheque beforehand.
- Authorised Signatory: This is the place where the issuer of cheque makes his signature to authorise the cheque.
- Cheque number and MICR code: These are printed on the lower side of the cheque.
Generally, all cancelled cheques and Blank Cheques should be destroyed to avoid their misuse. Whenever handing over a cheque, make sure that at least the columns of date, payee name and amount, are entered definitively, to avoid misuse of the cheque. Cheques should never be folded or stapled or disfigured in any manner. The MICR band should not be tampered with and contact information like name and telephone number should be provided behind each cheque, in case of any discrepancy. Many people struggle with writing a proper cheque and end up making an incorrect one, which leads to bouncing and dishonouring.
What is a blank cheque?
Whenever the authorised signatory to a cheque, makes a signature on a cheque before filing out the other mandatory details, the cheque is said to be made as a blank cheque. Often, this practice is adopted when a cheque is being made in lieu of a future uncertain event, the happening of which is contingent upon future events. However, the practice of using a blank cheque is more prevalent in the corporate environment. Nevertheless, one should generally avoid making a blank cheque, as it carries a high risk of being misplaced or else, used for illicit purposes. Always make sure that the following elements of a cheque have been filled out and not left as a Blank Cheque, to avoid its theft or misuse.
- Cancel the words ‘or bearer’ and add ‘A/c payee’ on right hand corner: The words ‘or bearer’ are used when the cheque is being used to pay anyone who might be holding the cheque at the time of presenting the cheque for payment. However, this is not the common practice as it can be misused easily. Therefore, make sure that the words are struck out. Instead, the words ‘A/c Payee’ should be written on the top right corner of the cheque within the two parallel crossed lines, indicating that it should be paid to the account of the person whose name is mentioned on the cheque.
- Avoid leaving blank spaces: While writing the name of the party, do not leave any space, before, between or after the name of the party. It can be easily misused and the name of another person can be added or modified on the cheque. Draw a horizontal line after the name is written completely and always start writing the name from the ‘pay’ area.
- Use ‘only’: At the end of the amount written in words, insert the word ‘only’, to indicate that the amount is definitive and strike out any remaining space after that. In the numbers box, add /- after writing the digits of the amount to be paid. To indicate an amount in paisa, add / between the digits. Do not leave any spaces in between the words or the digits.
- Signature: Always make a signature above the name printed in the area meant for signing the cheque. At all costs, avoid making a signature at the MICR band as it affects the processing of the cheque and might even be rejected and dishonoured.
- Proper date: Ensure that a cheque is properly dated at the time of making a payment. Do not leave it blank as it might be later filled by someone at their will and may be presented to the bank at a time when you do not have sufficient funds in your account.
- Avoid overwriting: This is one of the common reasons why a cheque might be dishonoured. Do not overwrite at any cost.