Payment methods through different types of Cheques

A cheque is an instrument of payment. Which is issued by an account holder for the purpose of making payments, cash withdrawals, funds transfer to another bank account. Cheque is a successful alternative of high-value transactions instead of hard cash. Which may otherwise become a bit cumbersome if used instead.

Necessary details in a cheque –

Drawer – A cheque must be signed by the person issuing the cheque.
Drawee – A cheque must be drawn upon a specified bank .
Payee – A cheque must have the name of the recipient of the cheque.
Amount – A cheque must mention the money in words and figures.
Dated – A cheque must mention the date.

Classification of Cheques:

Based on the location:-

1) Local cheques – Issued by a bank in the same city as the payee.

2) Outstation cheques – When a local cheque is presented in some other city’s bank, it becomes an outstation cheque. It may have some nominal but fixed banking charges.

3) At par cheques – It is a cheque which is accepted at par at all its branches across the country. Unlike local cheque, it does not attract any additional banking charges.

Based on its value:-

1) Normal Value cheques – Cheques below the amount of Rs. 1 lakh.

2) High Value cheques – Cheque bearing an amount higher than Rs. 1 lakh.

3) Gift cheques – Cheques used for gifting money to loved ones are gift cheques. Its value may vary from Rs. 100 to Rs. 10,000.

Cheques are mainly of four types:

1) Open cheque
An open cheque can be cashed over the counter at the bank. The holder of an open cheque can also deposit the cheque in his own account or pass it to someone else by signing on the back of the cheque.

2) Bearer cheque
A cheque payable to any person who presents it for payment at the bank counter.

3) Order cheque
In such a cheque the word ‘bearer’ may be cut out or canceled and the word ‘order’ is written. The payee can transfer an order cheque to somebody else by signing his or her name on the back of it.

4) Crossed cheque
Crossed cheque is made by drawing two parallel oblique lines across top left corner of the cheque and writing ‘Account payee’ (not necessarily) in the space between the lines. When a cheque is crossed, the payment of such cheque can only be credited to the bank account of the payee.

Cheques which guarantee payments:

1) Self-cheque
It is written by the account holder as pay to self for receiving money in physical form. However, this can be substituted by using an ATM card.

2) Post-dated cheque
A PDC (Post-dated cheque) is a form of a crossed cheque or account payee bearer cheque. It is post-dated to meet the promised financial payment at a future date. The validity of cheque is from the date of issue to three months.

3) Banker’s cheque
It is issued by the bank drawing money from its own funds. A banker’s cheque cannot be dishonored as in the case of a regular (normal) cheque when an account holder has insufficient funds in his/her account. Although different from a normal cheque, it claims clearing too.

4) Traveler’s cheque
It is an open type cheque issued as a replacement for carrying around cash while traveling abroad. These are widely accepted by merchants, restaurants and others. The unused cheques from the recent trip can be used for next trip.

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