What is a Cheque? (UK)

Even though the use of cheques can be traced as far back as the sixteenth century – when Amsterdam was a major international shipping and trading center; the concept of writing and depositing cheques didn’t quite spread to England until 1762, when a British banker named Lawrence Childs were said to have printed the first known cheques in England.

The word itself “cheque” is said to have been coined in England in the 1700s when serial numbers were placed on the pieces of paper as a way to keep track of, or “cheque” them.

So, what is a Cheque?

A cheque (also considered Check in American English) is a document which instructs an institution to pay an indicated amount, from the specified transactional account (usually the payer/writer’s) to its bearer.

More simply, a cheque is a piece of paper or a document that carries the instruction for the payment of a certain amount of money to its bearer  or a negotiable financial instrument, in which the writer orders his/her bank to pay the bearer or receiver of the cheque a stated amount of money.

They are also regarded as a bill of exchange that was developed with the intention to ease business transactions – and unless otherwise stated, it is an unconditional order, addressing the bank to credit its bearer.

In any case, the cheque may only be redeemed by the bearer – unless otherwise stated, and the cheque can be for any amount.

In the use of cheques, the parties involved are; the drawer (the bank, or institution where the money is located), the drawee (the individual who writes the cheque) and the payee or bearer (to whom the cheque is written).

What Are the Different Types of Cheques?

There are many kinds of cheques, and their variations are based on a number of factors including;

• The method by which the cheque was issued and
• The purpose or functionality of the cheque

This article will discuss cheques in both categories in-depth ;

 

 

 

 

Types of Cheques Based on the Method of Issuing

 

• Open Cheques

These are alternatively called bearer cheques and include information such as the name of the person to whom the cheque is issued, the amount to be redeemed and the signature of the account holder –

They also regarded as uncrossed cheques, where the word ‘bearer’ has not been cancelled, and as such – the cheque is automatically payable to the bearer or the presenter of the cheque and no identification is necessary; however, in normal banking practice, where the amount on the cheque is substantial, the identity of the person may be insisted on.

Thus, the major feature of a bearer cheque is that it can be negotiated or passed to another person by mere delivery without the holder (or transferor) endorsing it.

Open cheques are valid for no more than 3 months after its written date after which they become stale or void.

 

• Crossed Cheques

Unlike open cheques, these cheques are crossed with two parallel lines, either across the whole cheque or through the top left hand corner of the cheque. The lines are indicative that the cheques can only be deposited into a bank account and cannot be redeemed in cash.

The cheque is payable only through a collecting banker and directly at the counter of the bank since cash is not transferred.

There are no ways to uncross a crossed cheque by the payee, the payer may however uncross the cheque by writing ‘crossing cancelled’ across the front of the cheque, although this is not generally recommended as it jeopardizes the payer’s protection

Crossed cheques are also only valid for three months after the issue date unless otherwise stated.

 

• Self Cheques

These are cheques that are payable only to the drawer/account holder himself – they are written with the intention to receive cash from the bank wherein his/her account is resident.

In self cheques, your name or the word ‘self’ may be written in place of the payees name and cannot be redeemed by a third party; they are typically used by the owners of the account to withdraw money in instances where they cannot make withdrawals electronically.

There is no specified length of time after which a self cheque becomes invalid, after all these cheques are usually written and cashed by the owner themselves; in any case, the date as well as all other information on the cheque must be correct for posterity sake.

• Pay Yourself Cheques

These are also a category of crossed cheques.

Pay Yourself Cheques are usually issued from an account owner to a bank with the intention to pay for a bank service, where the issuers account is domiciled.

The cheque instructs that money may be deducted from the account of the issuer, for products such as drafts, fixed deposit receipts, pay orders or for depositing money into other accounts held by the account holder.

 

• Post Dated Cheques

A post dated cheque is a cheque wherein the issuer/account holder has stated a later date than the current date for the disbursement of the amount dated on the cheque.

This category of cheques may be written for the purpose of deliberate payment delay or when the issuer has little credit and the odds of the cheque being paid needs to be improved slightly.

It is also a form of crossed or account payee bearer cheque.

 

Types of Cheques Based on Functionality

 

• Bankers Cheque

These are cheques issued by the bank itself that is payable to the order of a specified payee for payment within a local area.

It is a type of cheque that represents a draft drawn on the bank itself, wherein the bank agrees to honor the cheque when it is presented for payment.

Here, it is only the bank and not customer that signs the cheque. Thus – the bank is liable to pay the cheque, while the bank sets aside funds from the customer’s account to reimburse itself when the cheque is cashed – and in contrast to the certified cheque, you could seek remedies immediately and directly against the bank is there is a problem with the payment the cheque

They are also called ‘treasurers’ or ‘managers’ cheques and are a much less common way of payment, but are significantly safe.

It is considered an assurance given by the issuer to the payee, and while personal cheques may bounce, on the basis of the funds available in the issuers account, these cannot since they are connected to the banks own funds.

Obtaining bankers cheques requires depositing funds equal to the cheque amount and the applicable fees with the issuing bank – the bank creates a cheque to the payee, drawn on the banks own account.

 

• Travelers Cheque

These are a kind of open bearer cheque which are issued by banks and are utilized as a medium of exchange as an alternative to hard currency. While it is not necessarily money, it is considered so because it is a piece of paper/ document that is bought from a bank or a travel company and that can be used as money or exchanged for money in various countries.

They are considered prepaid forms of payment, and are an easy replacement for the general norm of carrying large sums of money, but were much popular before the advent of ATMs and ATM cards.

Traveler’s cheques can be obtained in various currencies and denominations and are accepted as a means of payment in most establishments that are frequented by tourists and traveling business people.

While some sellers of travelers cheques suggest that it is permanently valid; the idea remains to be seen, as their validity can also be influenced by the policies within the institution that is expected to redeem it.

It is a direct equivalent to cash, especially while touring, but has the additional security in that it can be insured against damage, theft and/or loss.

 

 

• Local Cheques

A local cheque is a cheque which may not be redeemed in any other establishment other than that where the money was first deposited by the issuer.

These cheques are only valid in the specific city and branch where the issuer/account holder has an account and can be directly connected – if a city’s local cheque is presented elsewhere however, they may attract some fixed banking charges.

• At Par Cheque

These are a ready alternative to the local cheques, and are a category of cheques where no charge is deducted by the bank for redeeming a cheque even if the  it is in a branch that is in a different city from where the cheque is issued.

These cheque types are aided especially by the computerization and networking of bank branches which allows a cheque to be accepted ‘at par’ at all its branches across the country.

• Gift Cheque

Gift cheques are cheques which are issued by banks (for an additional charge) to customers who wish to present gifts of money to loved ones instead of hard cash.

They are issued with the necessary details of the payee included and maybe customized decoratively to suit the issuer’s specific taste.

Their validity are as indicated by the issuer or the financial institution from which the money would be withdrawn.

 

While the use of cheques may appear to be diminishing with advancements in technology, they are still a safe and valid way of conducting business transactions – however, with the internet gaining more popularity and net banking becoming more secure, it may not be too soon before cheques become an ideal of the past, if not for anything else – for the sake of demand for paper and the ever rising need to adopt a means of conducting life activities in a manner that isn’t detrimental to any part of the functioning ecosystem.