Cheque: Definition, Features, Functions & Types

What is the meaning of Cheque?

A cheque may be defined as an instruction in writing made upon a bank to pay a given sum of money to a named person or bearer, at a specific date only those who operate current accounts in commercial banks make use of cheques.

Features of a Cheque

• The name and the branch of the bank.
• The date the cheque will be presented for payment.
• The account number of the drawer.
• The amount to be paid to the payee.
• The serial number for reference purposes.
• The name of the payee who may be the drawer.
• The amount in words and in figures.
• The signature of the drawer which will serve as an evidence to the bank that the cheque was issued by the owner at the account.
• The stamp duty.

Functions of a Cheque

• It Makes Payment Convenient: Its use has reduced the burden of countng large sums of money.
• It Removes The Risks Of Carrying Physical Cash: Even if an armed robber snatches a cheque away from the owner. It will not be of any use to him and the holder has lost nothing especially crossed cheque.
• Cheque Acts As A Receipt: With the name of the payee on it and the cheque deposited in the bank, the recipient of the cheque can never deny that such money was paid to him.
• It Makes Business Transactions Possible Within A Shout Time: The use of cheques avoids the time wasting that is associated with counting of large sums of money.
• It Is A Safe Means of Remitting Money: In order to make it safer, i must be crossed which means that it must be paid into the account of the person whose name is written on the cheque.
• It Can Be Stopped: The drawer can pay someone with a post dated cheque and can still stop it if he finds out that the purpose for which it was issued is not genuine.

Types of Cheque

• Bearer Cheque: This is a cheque that Is made payable to whoever that presents it and that is the meaning of the word bearer. It does not mean that no name is written on the cheque This means that anybody can present the cheque in spite of the name written on it and the bank is obliged to honour it. It therefore means that a bearer cheque is not safe.
• Order Cheque: This is a cheque made payable to a person named on it or his own order. What this means is that an order cheque is only paid to the person whose name appeared on it or another person he will order the bank to pay the money by endorsing the cheque to be paid to the person. By endorsing an order cheque, it means that the payee signs at the back of the cheque and transfers it to another payee.
• Open Cheque: This is a cheque without transverse lines drawn across its face. A cheque of this nature is cashed at the counter on presentation or the payee can pay it into his bank account if he has current account.
• Crossed Cheque: It is the opposite of an open cheque because, it has two transverse lines drawn across its face. In between the two lines, it may or may not be written “& Co” or “Not Negotiable”. A crossed cheque is never cashed at the counter, it is paid into the payee’s current account. If the payee has no current account, he has to endorse it to another person who has current account. The most important reason for crossing a cheque is to secure it from falling into fraudulent hands. If the words “please pay cash” are written inbetween the two transverse lines and the drawer signs his signature, the crossed cheque will automatically reverse to an open cheque.