Cheque

A cheque is a written document through which a person who holds money in a bank account (the drawer) instructs their bank to pay a specific sum to another person or organization. It is a payment instrument that withdraws money from an existing account (bank account) rather than transferring physical cash from hand to hand.

A cheque is usually written on a pre-printed form provided by the bank, known as a cheque book. The form contains the bank's name, the account number, the cheque number, a space for the date, the name of the person to whom payment is made, the amount in both figures and words, and the signature of the account holder. The signature is essential for the bank to accept the instruction.

Parties involved

Three parties are typically involved: the drawer, who writes the cheque and holds the account; the drawee, which is the bank that holds the money and carries out the instruction; and the payee, who receives the payment. In some cases, the payee may transfer the cheque to a third party if it is a transferable cheque, which is done through an endorsement (a signature on the back).

Types and regulation

Cheques are classified in several ways. A bearer cheque can be cashed by whoever presents it, while an order cheque requires the payee to be identified. A crossed cheque—marked with two parallel lines in the top corner—cannot be cashed as cash but must be paid into an account. A post-dated cheque cannot be processed before the date written on it. Some banks issue cheques drawn by the bank itself, which carry greater certainty.

Method of payment transfer

When the payee takes the cheque to their bank, the bank routes it through a clearing system operated by banks. The drawer's bank verifies the signature, date, and that the account has sufficient funds. If funds are insufficient, the cheque is returned, known as a dishonoured or bounced cheque, which in many jurisdictions carries legal penalties or liability. Modern systems use digital images of cheques (cheque truncation) instead of physically transferring the paper.

Current status

Cheque use has declined in many countries due to bank cards, electronic transfers, and mobile payment systems being faster and cheaper. However, cheques are still used for salaries, rent, large business transactions, and situations where a written record is important. Some countries still recognize cheques as legally valid proof of payment.