cheques

Cheques

 Cheques is only available for current account holders

 The commercial bank acts an agent for payment for its current account holder

 Through the use of cheques, he authorizes his bank to pay cash or transfer money from his account to the payee

 Cheques are usually valid for a period of six months and after its expiry is called a stale cheque

 A cheque that is dated in the past is called an antedated cheque

 A cheque that is dated in the future is called a post – date cheque where it can’t be cashed until the date written on the cheque



Parties of Cheque



There are three parties to a cheque:

1. The drawer – The person who writes and signs the cheque

2. The drawee – The bank where the drawer has an account and the bank to which the cheque belongs to

3. The payee – The person named on the cheque who is going to receive the money



Drawer --------------- Drawee ------------------------- Payee


Advantages of using cheques



1. Convenience – where no notice of withdrawal is required. A cheque can be made for any sum and it eliminates the need for counting or carrying bank-notes

2. Safety – where it can be safeguarded by crossing the cheques that can be traced as it is numbered. In case of doubt or suspicion, it is easy to stop payment. It also reduce the risk or carrying large amount sum of money around

3. Proper record – cheques serves as a record of receipts and payments since each cheque has a counterfoil in which particulars are recorded. In addition, the monthly bank statement sent to the current account holder shows his deposit, receipts and payment during the month

4. Relatively cheap – where the cost of each cheque is low in most countries



Types of Cheques

1. Open Cheque

2. Crossed Cheque

3. Dishonoured Cheques

Open Cheque

 An open cheque is a cheque which is cashable over the counter of the particular bank on which it is drawn

 There are two kinds of open cheques:

1. Bearer Cheque

• Cheque which is written “pay” or “bearer” and can be cashed at the bank by anyone who has the cheque.

• It is risky and unsafe



2. Order Cheque

• Cheque which is written “pay” or “order” which is payable to order of a specified payee or to any other person as ordered by the payee to the bank to make payment by endorsement of the cheque



Types of Endorsement

1. General – sign his own name

2. Special – sign his name as well as name of a particular person

3. Restricted – Payee sign and adds the following words “payee…only” on the order cheque



Crossed cheque

 To make a cheque safer it can be crossed by drawing two parallel lines across the face of the cheque

 There are two type of crossed cheque

1. General crossing

2. Special Crossing


General Crossing



 Cheque with general crossings can be paid into any bank

 Consists of two parallel lines drawn across the face with or without the words

a) “not negotiable” – Protect the rightful owner of the cheque

b) “Act payee only” – must be paid only into the account of the payee

Special Crossing



 Consists of two parallel lines draw across the face with the name of the bank

 Must be paid into the bank named in the crossing


Dishonoured Cheque



 Dishonoured cheques are those which, when presented to the bank, are refused payment



Reasons for Dishonoured Cheque



1. The drawer may not have sufficient funds to meet the amount written on the cheque. He may have exceeded the overdraft limit

2. The drawer’s signature may be missing or not the same as the specimen signature held by the bank

3. The cheque is post – date

4. The cheque is stale (old)

5. There is difference in the amount written in words and numeric

6. The cheque is defaced or torn

7. Alterations and corrections in the cheque not endorsed or signed

8. The drawer has closed his account

9. The drawer instructs the bank not to pay

10. The drawer is dead, bankrupt or insane