Banks are an important part of any community. They provide people with access to financial services like loans, savings accounts, and other commercial assistance. There are all sorts of different cheques associated with banks, and one of them is a cancelled cheque.
This article will explain what a cancelled cheque is and how you can write one. Keep reading to learn more!
Bank cheques are a convenient and secure way of paying your bills. You can withdraw or deposit money at any time without having to go through the hassle of going into an ATM outside, where it’s likely that somebody will try taking what isn’t theirs!
Let us first get familiar with the term Cheque-
What is a Cheque?
A cheque, also called a bank draft, is a written order from one person to another instructing the second person to pay a certain sum of money to a third party. We use cheques for both personal and business transactions.
When you write out a cheque, you’re essentially instructing your bank to tell it to pay somebody else.
A cheque is also known as a bill of exchange or a negotiable instrument. A cheque orders the bank to pay the mentioned amount from the drawer’s bank account to whomever it has been issued to or to the bearer of the cheque.
Cheques allow people to make transactions without having cash on hand. It is convenient, safe, and secure!
How Many Parties are there to a Cheque?
#1. Drawer of the Cheque
The person writing the cheque orders the bank to pay a certain amount to someone, and in banking terms, the cheque writer is “the drawer.”
#2. Drawee of the Cheque
The bank ordered to pay an amount on a cheque is known as the “drawee.”
The person who will receive the money is called a “payee.”
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Types of Cheques
#1. Open Cheque
A signed cheque that doesn’t have the money written is called an open cheque. An open cheque might have space for the amount to be written.
For example, if you’re writing a cheque out of your bank account at home and you don’t know what exactly will be due on any given day, then this would work perfectly!
#2. Self Cheque
A self-cheque is a cheque where the drawer is also the payee. The funds are transferred from one account to another, and no third party is involved.
Parents often use this type of cheque to deposit money into their child’s bank account or for business owners to transfer money between their accounts.
When you write a self-cheque, you’re essentially writing a cheque to yourself.
#3. Crossed Cheque or A/c Payee Cheque
Crossed cheques have two lines drawn across the whole or through one corner. These symbols mean you can only deposit this into your bank account, so it’s not immediately cashed by anyone else!
The purpose of crossing a cheque is to ensure that the payee deposits it into their bank account for collection. And payee is not cashing it with another party, such as a third party.
#4. Cancelled Cheque
When a cheque is cancelled, it means that the bank has accepted payment for what was owed on this document. The person who wrote these cheques might not want them to be used anymore.
The cancelled cheque is the most common type of cheque. A cancelled cheque can be used as proof of payment.
A person can cancel a cheque before it has been deposited or chased by alerting the issuing bank, thus avoiding it.
#5. Stale Cheque
A stale cheque is a cheque that’s been outstanding for more than three months.
The drawee will not honour a stale cheque, and the payee won’t be able to cash it or deposit it into their account.
Suppose a cheque is drawn on 10th January 2021, then it will be valid up to 3 months from the date of issue, i.e. 10th April 2021. If the cheque is presented after a reasonable time, it cannot be encashed because the banks dishonour such cheques. These cheques are called stale cheques.
#6. Order Cheque
An order cheque is a type of cheque that’s used to pay for goods or services.
The funds are transferred from the drawer’s account to the merchant’s account, and no third party is involved.
You can withdraw cash from an order cheque only if you are the person or party in whose name it has been drawn.
The collector will give identification proof when encashing this type of cheque. Likewise, the drawee will give identification proof while encashing an order cheque. The drawer must strike out words like “bearer” so that there is no uncertainty about the drawee’s identity. An order cheque shall carry only the necessary details to make the payment.
#7. Traveller’s Cheque
A Traveller’s cheque is a type of cheque that can be used to pay for goods or services while travelling. You can use a traveller’s cheque instead of hard currency to buy things from wherever you are.
Traveller’s Cheques are a great way to avoid currency exchange fees and the hassle of exchanging cash. For people on vacation, they’re more convenient than carrying around bags full of serious money!
When you’re in a foreign country and don’t want to carry around a lot of cash, traveller’s cheques are the perfect solution. Like a regular cheque, a traveller’s cheques can be used to pay for goods or services.
Also Read: How Start a Travel Agency Business in India?
#8. Blank Cheque
A blank cheque is a type of cheque that has been pre-printed with the payee’s name and account information. But it does not mention the amount of the cheque.
The drawer can fill in the amount of the cheque when they write it.
A blank cheque is a powerful tool that can be useful in certain circumstances. However, it comes with risks and should not simply become something you rely on because of how easy they are to mismanage. Blank cheques can be used carelessly or fraudulently if someone has access to your account information.
What is a Cancelled Cheque?
A cancelled cheque is a cheque that has been avoided by the drawer and is no longer valid. As a result, the bank will not honour it if presented for payment. A cancelled cheque may be used as evidence in a legal case.
A cancelled cheque is marked with “cancelled” in-between two lines. It’s common for mistakes to be made when writing out a cheque, so to make sure that the cheque is not misused, a cancellation procedure is followed.
However, A cancelled cheque contains a lot of information that is not easily accessible. The most important thing it includes is the details on who has an account with this particular bank, what type of financial institution they are associated with, and where is the branch located.
Now that we know what a cancelled cheque is, let us see how it’s written-
How a Cancelled Cheque is Written?
Cancelled cheques do not require your signature. They contain information, such as account number, account holder’s name, MICR code, branch address of the bank, and name.
To Write a Cancelled Cheque, Follow these Steps:
- Please take out a cheque leaf from your cheque book and make two parallel lines across it.
- Write “CANCELLED” in capital letters between the two lines, so there is no confusion about what you are trying to convey from this point forward.
- Make sure that by writing ‘cancelled’, nothing important gets covered up or altered on the cheque. Like the account number, IFSC code, MICR code, account holder’s name, bank’s name, or address.
What are the Uses of a Cancelled Cheque?
- Demat Account: To open a Demat account, you must submit your cancelled cheque and other KYC documents, such as identity proof address proof.
- EQUATED MONTHLY INSTALLMENTS (EMI): Banks usually ask for a cancelled cheque to set up the EMI facility on your credit card or loan account.
- Direct Debit: When you make an automatic billing arrangement with any service provider, the service provider may require a cancelled check as consent for charging funds in your bank checking account.
- Auto-Debit: When you set up a recurring payment for bills like your electricity, water, or gas bill, the company will ask for a cancelled cheque to initiate the auto-debit from your bank account.
- Insurance Payment: To make monthly premium payments for insurance policies, you must submit a cancelled cheque as an authorization form.
- Know Your Customer (KYC): Banks need your cancelled cheque as a part of the KYC verification process.
- Investment: To invest in mutual funds or any other financial product, you will have to submit a cancelled cheque to the fund house or agent.
- Tax Payments: If you want to make tax payments through net banking, most banks ask for a cancelled cheque as an authorization.
We hope you enjoyed this blog post on what a cancelled cheque is and how to write one. Cancelled cheques are used for a variety of reasons such as setting up an EMI, Direct Debit, Auto-Debit, or insurance payments. They can also be used as an authorization form for other transactions such as investments or tax payments. As long as you know how to write a cancelled cheque and what it is used for, you’ll be able to handle any payment situation that comes your way!
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