What is a Cheque – Types, Components, Uses, Advantages

A cheque is the most basic way of transferring funds. To explain simply, cheque is a document that you can issue to your bank to transfer a specified amount (whatever you mention on the cheque) to the person whose name is borne on the cheque. Let’s know all about the different types of cheque in this post.

Components of a Cheque

The following are the details mentioned on a cheque:

• Bank Name & Logo
• Date
• Pay to (where Payee name is to be written)
• Rupees (in words)
• Rupees (in figures)
• Account Number (printed)

• Space for authorized Signatory(s)
• 6-digit cheque number
• 9-digit MICR
• 6-digit account number (part)
• Last 2 digits of transaction ID

Types of Cheques

Technically there are only two types of cheques – a Bearer Cheque and an Order Cheque. When we talk of the different types of cheques, we are basically talking of the various ways in which a cheque can be issued.

Bearer Cheque

A cheque in which the bearer, i.e. the one having the cheque, can encash it or get the money deposited in their bank account on presenting the cheque at the authorized bank. Such cheques can be endorsed.

Order Cheque

An order cheque is a type of cheque in which only the payee, whose name is written on the cheque, can encash over the counter at the authorized bank. In such cheques, ‘Pay to Bearer’ is not mentioned.

Uses of a Cheque

A cheque is basically used to transfer funds from account to account/person or for withdrawal of money. The following mentioned are the various ways in which you can order the bank to proceed with the cheque:

Crossed cheque

When you draw two parallel lines with the words ‘A/c Payee’, you’re directing your bank to pay the mentioned sum of money only to the person whose name (and account at the back of the cheque) is mentioned on the cheque, irrespective of who presents the cheque.

Any cheque which is not crossed is an open cheque.

Post-Dated Cheque

You can order your bank to pay the specified sum of money to the bearer/payee at a later date. The bank will only pay the money to the payee/bearer only at the date mentioned, at no time earlier. These can be considered if you have a payment to make but you will receive your money at a specific date only. So you give the cheque to the person you’re liable to pay, thus promising the amount at a later date.

Self-Cheque

A self cheque is a cheque in which the Payee is you, i.e. whose account number is printed on the cheque. You can write ‘Self’ in the Payee section and withdraw money from your account. However, with ATMs all around us, chances are you won’t need this option most of the times.

There is another type of cheque which is called as a Banker’s Cheque which is nothing but a Demand Draft. Some countries like UK and USA use the term Banker’s Cheque whereas in India, Demand Draft is a more commonly accepted term.

How is a Cheque different than a Demand Draft?

The following are the difference between cheque and demand draft:

What is an Account Payee Cheque?

An account payee cheque is a cheque in which the issuer, i.e. you, direct the bank to pay the money stated in the cheque only in the account of the payee. Such cheques are highly safe as these cannot be transferred/endorsed and cannot even be encashed.

Benefits of Using a Cheque

The following are some of the benefits of using a cheque:

• It’s a preferred choice when you need to make payments at a later date but need to commit right away; in case of business deals
• Cheques are not dependent on internet; so if your netbanking is not working, you can still make your payments without cash

Also, read more articles related to Cheque:

Cheque: FAQs