A cheque is an unconditional order in writing, drawn on a specified bank, signed by the drawer, directing the bank to pay him a certain sum of money or to a specific person, on-demand to write a Cheque.
Elements of cheque
- Nature of account.
- Account number.
- Cheque number.
- Word ‘bearer’ or ‘order.’
- Amount in words.
- Amount in figures.
- Signature of the depositor.
Kinds of cheque
It is a cheque that involves no restriction, and any person can withdraw money from the bank without giving their identification. In this cheque, the word ‘Bearer’ is written after the name of the payee. The presenter or holder of the cheque can receive the amount.
Bank demands identification of the payee for the payment of this cheque to clarify the name written on the cheque. No other person except the payee is entitled to receive the amount. The word order is written after the payee’s name on the cheque, and the word ‘Bearer’ is written off. The amount of this cheque is not paid without identification. Only that person can withdraw the amount whose name is written on the cheque.
It is a typical cheque on which the drawer draws two transverse parallel lines. The line stands for some instructions. These cheques are much safer as compared to the order cheque and bearer cheque. The amount of this cheque is not collected at the bank counter because the amount of this cheque is only deposited to the account of a particular person.
Steps to write a cheque
- Initially, write the date on the dateline present on the top right-hand corner of the cheque. This will help you to remember on which date you draw a cheque.
- Write the name of the payee for which the cheque is drawn.
- Now Write the amount in numbers.
- Write the amount in words.
- Write a memo. This will help you to keep in record that the cheque is drawn for what purpose.
- At the bottom of the cheque, there is a specified place for signature to sign the cheque.
Endorsement of cheque
Word endorsement is derived from the Latin word “Indorsum.” In Latin language, “In “ means”on “ and”dorsum “ means back “ . Thus in dorsum means “on the back.” So writing on the back of a cheque is called an endorsement. Endorsement means writing on the back of a cheque, which reveals the responsibility in any transferring matter.
Dishonoring of cheque
The bank must honor the cheque of his customer provided that there are sufficient funds, the cheque is written in a proper form, there is no illegal bar for the payment of the cheque. But if the cheque is not in good shape, the bank refuses to give the price.
Causes of dishonoring of cheque
When the drawer signs, the cheque or signature does not tally with the specimen signature card supplied to the bank. The bank dishonored a cheque.
No entry of data
If the date (day, month, or year) not written on the cheque, the bank does make payment.
If the customer’s credit balance is not sufficient to pay the amount, then the banker will refuse the cheque payment.
If the cheque post-dated and not due on time, it will not pay.
The cheque which has been in circulation for an unreasonable length of time is an outdated cheque, which the banker does not pay.
Amounts in words and figures differ.
If the amount in word and figure different, then the cheque will dishonor.
If the cheque lost and the drawer informs the bank well in time, the bank does not make the payment.
If the cheque torn out and the writing illegible, the bank refuses to take it.
If the information written on the cheque is not clear or understandable by the bank, then the bank does not honor a cheque.
Use of pencil
If the drawer writes the cheque with a pencil, then the bank will terminate the cheque.
Death of customer
A bank can refuse the payment of a cheque when it comes to knowing about the death of its customer.
If the customer becomes of unsound mind and the bank has learned of it, he must stop paying his cheques. However, the cheques issued before his insanity are valid.
Insolvency of customer
Suppose the banker informs that a sure customer has become bankrupt. In that case, the banker terminates the payment of the cheque because now the deposit of money will be divisible among the creditors of the customer.