Features & Function Of Cheque.

Cheque:-

A cheque is a negotiable instrument, meaning it can be transferred from one party to another by endorsement or delivery. The negotiability of cheques allows for their use in a variety of financial transactions.

Features of cheque

Drawer:

The drawer is the person who writes and signs the cheque, instructing the bank to make a payment. The drawer is typically the account holder.

Payee:

The payee is the person or entity to whom the cheque is made payable. This is the individual or organization that will receive the payment.

Drawee Bank:

The drawee bank is the financial institution where the drawer holds an account. It is the bank responsible for honoring the cheque by making the payment.

Cheque Number:

Every cheque has a unique identification number printed on it. This number helps in tracking and referencing the cheque for record-keeping purposes.

Date:

The date on the cheque indicates when the cheque was written. It serves as a reference point for the validity of the cheque and helps in determining when the funds should be withdrawn.

Amount in Figures and Words:

The cheque includes the amount of money to be paid, both in numerical figures and written in words. This helps prevent alterations or fraudulent changes to the cheque amount.

Signature of Drawer:

The cheque must be signed by the drawer. The signature confirms the authenticity of the cheque and authorizes the bank to make the payment.

Account Number:

The account number of the drawer is typically printed on the cheque. This information is crucial for the drawee bank to identify and verify the account from which the funds should be withdrawn.

MICR (Magnetic Ink Character Recognition) Line:

The MICR line at the bottom of the cheque contains information encoded in magnetic ink. This line includes the bank's routing number, account number, and cheque number. It facilitates automated processing of cheques.

Crossing:

A crossed cheque has two parallel lines drawn across its face. This indicates that the cheque should be paid into a bank account and not exchanged for cash over the counter. It enhances the security of the transaction.

Functions of Cheques

Payment:

The primary function of a cheque is to serve as a payment instrument. The drawer (account holder) issues a cheque to authorize their bank to make a specific payment to the payee (recipient).

Transfer of Funds:

Cheques facilitate the transfer of funds from one party to another without the need for physical currency. This is especially useful for transactions involving larger sums of money.

Settlement of Debts and Obligations:

Cheques are commonly used to settle debts, pay bills, and fulfill financial obligations. Individuals and businesses often use cheques to make payments for goods and services.

Convenience:

Cheques provide a convenient and portable means of making payments. They eliminate the need for carrying large amounts of cash, making financial transactions safer and more manageable.

Record-Keeping:

Cheques provide a written record of financial transactions. The cheque itself serves as proof of payment, and the associated cheque stub or counterfoil provides a record for the drawer's personal accounting.

Security:

Cheques incorporate security features such as signatures, watermarks, and magnetic ink character recognition (MICR) encoding. These features help prevent fraud and unauthorized access to funds.

Deferred Payment:

Cheques allow for deferred payment, providing the drawer with a certain period before the funds are actually withdrawn from their account. This can be advantageous in situations where there is a delay between the agreement to pay and the actual payment.

Facilitation of Business Transactions:

In business transactions, cheques are often used for payments to suppliers, vendors, and service providers. They offer a traceable and documented way to settle financial obligations.

Cross-Border Payments:

Cheques are still used for cross-border transactions, especially in regions where electronic payment systems may not be universally adopted. They provide a widely accepted means for international trade and commerce.

Verification of Identity:

The signature on a cheque serves as a means of verifying the identity of the drawer. This adds an element of security and accountability to cheque transactions.