Types of Cheque

The purpose of negotiable instruments is to ensure that monetary transactions can take place smoothly and as per the required specifications. For instance, cash is the most preferred mode to make immediate payments. For payments that can be accepted at a later date, people accept cheques. Lately, for a direct account to account transaction, we have credit and debit cards. Each type of payment has a specific negotiable instrument attached to it. In case of cheques, there are different types of cheque which one uses in various circumstances.

Some of the most common types of cheque are listed here.

1. Bearer Cheque

The first among the types of cheques is the bearer cheque. This cheque is payable to the bearer of the check or whose name the cheque carries in the column meant for the name of the drawee. Ideally, this cheque has “or bearer” printed at the end of the dotted lines, which is meant to have the name of the drawee. This cheque can be presented over the counter of the drawee bank and is payable to the one presenting it. It is a transferable instrument and thus can be passed on to another by mere delivery, there is no need to endorse this type of cheque.

2. Order Cheque

In this cheque, the printed word “bearer” is canceled thereby making it payable only to the person whose name is written in the place of drawee. Once “bearer” has been canceled on the cheque, it is automatically understood that this is an order cheque and the bank can only complete the transaction once they have identified, to their satisfaction, the bearer of the cheque to be the same person, as named in it.

3. Crossed Cheque

In a crossed cheque, the drawer makes two parallel transverse lines at the top left corner of the cheque with or without writing “a/c payee”. This makes sure that no matter who presents the cheque to the drawer bank, the transaction is made into the account of the person named in the cheque only. The advantage of cross cheque is that it reduces the risk of money being given to an unauthorized person because this type of cheque can only be cashed by the drawee’s bank.

4. Open Cheque

Also known sometimes as an uncrossed cheque. Any cheque that is not crossed comes under open cheque category. This cheque can be presented to the drawer’s bank and is payable to the person presenting it. The drawee of this cheque can also transfer it to another person by writing their name on the cheque and thereby making them the drawee. To make the cheque open, the word OPEN should not be crossed off, and the person issuing the cheque must ensure his/her signatures on both the front and the back of the cheque. Otherwise, the payee may be denied the payment by the bank. The payee is also expected to sign at the back of the cheque while receiving the amount.

5. Post- Dated Cheque

A cheque bearing a later date than the one on which it is actually issued, is called as a post-dated cheque. This cheque maybe presented to the drawee bank at any time after its issuance, but the money will not be transferred from the account of the payer until the date mentioned on the cheque. The payee can also present the cheque after the date mentioned on the cheque too. It will still be valid, and the money will be transferred to the payee’s account.

6. Stale Cheque

As the name suggests, a stale cheque is one which is past its validity period and can no longer be encashed. Initially, this period was six months from the date of issue. Now, this period has been reduced to three months.

7. Travelers’ Cheque

These may be equated with a universally accepted currency. A travelers’ cheque is available almost everywhere and comes in various denominations. This is an instrument issued by the bank itself to make payments from one place to another. There is no expiry date of a travelers’ cheque and thus it can be used during your next travel as well, or you have the option to encash it once you land back in India.

8. Self Cheque

The drawer usually issues a self-cheque to his or her self. The name column of the drawee has the word “self” written in it. A self-cheque is drawn when the drawer wishes to withdraw money from the bank in cash for his use. This cheque can only be encashed in the account holder’s or the drawer’s bank. This cheque must be used carefully because if it is lost, another person may easily get it encashed by visiting the drawer’s bank.

9. Bankers Cheque

A banker’s cheque, as is self-explanatory here, is a cheque issued by the bank on behalf of the account holder in order to make payment of a specified sum, by order, to another person within the same city. It is valid only for three months from the date of issue, but if needed, can be re-validated upon fulfilling certain legal obligations.

In modern times we have option of using various negotiable instruments to effect any monetary transactions. However, cheque is currently one of the most common negotiable instruments or bill of exchange, used globally.