Cheques have long served as a secure and widely accepted method of payment in both personal and business finance. Even as digital banking and instant transfers have gained popularity, cheques continue to hold relevance, particularly in formal or high-value transactions. They are often used in transactions that require documentation, post-dated payments, or where parties prefer traditional, paper-based instruments for record-keeping and control.
Despite their reduced day-to-day use, it is essential to have an understanding of the different types of cheques and their respective purposes. In this blog, we will cover the basics of cheques and explore the various types you may encounter.
A cheque is a written financial instrument through which an account holder (drawer) instructs their bank (drawee) to pay a specified amount to an individual or entity named on the cheque (payee).
As per Section 6 of the Negotiable Instruments Act, 1881, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Cheques in India play an important role in managing finances, and there are different types designed for specific needs:
A bearer cheque can be encashed by any person holding the cheque and transferred to others without any endorsements. Such convenience can be helpful during quick transactions, but risky at the same time if it’s stolen or lost. Due to this risk, bearer cheques are no longer commonly used today, and safer options, such as account transfers or crossed cheques, are preferred. The words “or Bearer” are not cancelled in a bearer cheque.
An order cheque is payable only to the named individual or an endorsed person. The bank verifies the identity of the individual presenting the cheque for authenticity before releasing payment. To make a cheque an order cheque, the words “or bearer” must be struck off, ensuring it is payable only to the named payee. As the cheque cannot be encashed by any person, it provides greater security than a bearer cheque.
In a crossed cheque, there are 2 parallel slant lines drawn at the top left corner with the words "A/C payee" written between them. These lines ensure that the payment will be credited to the person named on the cheque (payee), regardless of who presents it. In short, a crossed cheque can only be cashed at the drawee's bank.
A cancelled cheque is a cheque that is considered invalid for payment when the account holder draws 2 parallel lines across the cheque and writes “CANCELLED” between them. Although the cheque is rendered void, it is still crucial for verification and Know Your Customer (KYC) purposes to confirm account details, such as the IFSC code, account number, and other relevant information of the account holder.
An open cheque is a type of cheque that is not crossed with parallel lines and allows any bearer to encash it. It is also transferable from the original payee to another payee. The issuer (drawer) must sign both the front and back of the open cheque to authorise its use. Due to a lack of security, banks don’t advise using open cheques for large sums.
If a drawer wants to withdraw cash from his account or transfer money from one account to another account within the same bank, he can write a self-cheque writing “SELF” in the place of the payee’s name.
The validity of a cheque is three months (currently) from its date of issuance. If you visit your bank to honour a cheque that was signed three months ago, the bank will reject it and declare it a stale cheque. Thus, it’s always better to encash or deposit the cheque as soon as possible within its validity period.
A post-dated cheque is issued for a future date, so it can only be used on or after that date. Banks do not cash the cheque until the specified date. Commonly used for EMI payments, rents, or future-dated financial obligations, the issuer must have a sufficient balance on the due date to avoid cheque bounce charges.
A banker’s cheque is issued by the bank for an account holder, guaranteeing payment to the beneficiary in the same city. It is non-negotiable and cannot be dishonoured once issued. The fixed amount is debited from the customer’s account. Often used for official transactions, a banker’s cheque remains valid for three months and is revalidated after certain conditions are met.
Travellers on vacation often prefer carrying travellers’ cheques instead of hard cash, as handling large sums of currency can be risky and inconvenient. These cheques are pre-printed by a bank in their home country and can be cashed in local currency at banks abroad. Since a traveller’s cheque does not expire, it becomes useful for multiple trips over time.
Cheques might seem old-school in today’s digital banking world, but they’re still a popular way to make payments for both personal and business needs. Different types of cheques serve different purposes—like bearer cheques for flexibility, crossed cheques for added security, or post-dated cheques for convenience. Understanding which one to use and when can save you a lot of hassle and help keep your transactions smooth and secure.
You need to add the date, the payee’s name, the amount in both words and numbers, and your signature. Be sure to keep it neat, avoid any overwriting, and double-check that everything is correct.
To cancel a cheque, draw two parallel lines across it and write "CANCELLED" in capital letters between them. Do not sign it or fill in any other details.
A cheque number is a unique 6-digit code printed on the bottom left of every cheque leaf.
The validity of cheque in India is 3 months (currently) from the date it is issued. After that, it becomes stale and cannot be encashed.
A dishonoured cheque is one that the bank refuses to process due to insufficient funds, mismatched signatures, or an expired date. It may result in legal issues, financial penalties, and harm to your credit score.
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