Page 161 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Types of Cheque

Broadly speaking, cheques are of four types.
(a) Open cheque, (b) Crossed cheque (c) Bearer cheque, and (d) Order cheque
Let us know details about these cheques:
1. Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at
the bank. The holder of an open cheque can do the following:
(a) Receive its payment over the counter at the bank,
(b) Deposit the cheque in his own account

(c) Pass it to some one else by signing on the back of a cheque.
2. Crossed cheque: Since open cheque is subject to risk of theft, it is dangerous to issue such
cheques. This risk can be avoided by issuing another types of cheque called 'Crossed
cheque'. The payment of such cheque is not made over the counter at the bank. It is only
credited to the bank account of the payee. A cheque can be crossed by drawing two
transverse parallel lines across the cheque, with or without the writing 'Account payee' or
'Not Negotiable'.

3. Bearer cheque: A cheque which is payable to any person who presents it for payment at the
bank counter is called 'Bearer cheque'. A bearer cheque can be transferred by mere delivery
and requires no endorsement.
4. Order cheque: An order cheque is one which is payable to a particular person. In such a
cheque the word 'bearer' may be cut out or cancelled and the word 'order' may be written.
The payee can transfer an order cheque to someone else by signing his or her name on the
back of it.

There is another categorization of cheques which is discussed below:
Ante-dated cheques: Cheque in which the drawer mentions the date earlier to the date of presenting
if for payment. For example, a cheque issued on 20th May 2003 may bear a date 5th May 2003.

Stale Cheque: A cheque which is issued today must be presented before at bank for payment
within a stipulated period. After expiry of that period, no payment will be made and it is then
called 'stale cheque'. Find out from your nearest bank about the validity period of a cheque.
Mutilated Cheque: In case a cheque is torn into two or more pieces and presented for payment,
such a cheque is called a mutilated cheque. The bank will not make payment against such a
cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no
material fact is erased or cancelled, the bank may make payment against such a cheque.

Post-dated Cheque: Cheque on which drawer mentions a date which is subsequent to the date on
which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th May
2003 bears a date of 25th May 2003, it is a post-dated cheque. The bank will make payment only
on or after 25th May 2003.

Notes Since open cheque is subject to risk of theft, it is dangerous to issue such cheques.
This risk can be avoided by issuing another types of cheque called ‘Crossed cheque’.

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