Types of Cheques / Parties of a Cheque

A cheque is an instruction to the bank to pay a stated amount from a current account to the person named on it.

Parties of a Cheque:

We have 3 parties to a cheque. These are:

1. Payee: The person whose name is written on the cheque, that is the person to whom the cheque is payable.

2. Drawer: The owner of the current account, that is, the person who issued and signed the cheque.

3. Drawee: The bank from where the money is cashed. This is the bank whose name is printed on the cheque, e.g. Union Bank, Ecobank, First Bank, etc.

Types of Cheques:

There are different types of cheques and they include;

1. Open cheque:

An open cheque is a cheque without lines drawn across its face. It can be cashed easily over the bank counter.  

2. Order Cheque:

An order cheque is a type of cheque that is made payable to a person or firm named on it, or an order, which requires the endorsement of the payee unless he or she pays into his or her own bank account.

The payee can transfer an order cheque to someone else by signing their name on the back of it. This is known as endorsing a cheque.

It turns into a bearer cheque when the payee endorses it to another person.

3. Bearer Cheque:

A bearer cheque is a cheque that is payable to the bearer. A bearer is whoever presenting the cheque.

This means, the cheque has a name written on it, but it is payable to anyone who presents it, therefore this type of cheque lacks security.

4. Cross Cheque:

A cheque is crossed if two transverse lines are drawn on its face. A crossed cheque cannot be cashed over the bank counter on presentation. It is the most secure type of cheque. 

When a Cheque is crossed, the following happens:

• The cheque will only be payable to a bank’s current account.
• The owner of the cheque or the person whose name appears on the cheque is protected against loss of the cheque.
• The cheque is restricted to a particular bank.
• The owner of the cheque is protected against theft.
• The cheque will not be payable at the counter.
• In the case of fraudulent practice, it will be easy to trace the culprit.

There are different types of crossing on a cheque. We have a general and special crossing.

General Crossing: The general crossing of a cheque is the type commonly used in business. This type of crossing is not restrictive and offers lesser protection.

Special Crossing: This type of crossing produces additional security to the cheque. It ensures greater and stricter protection by naming a specific bank where the cheque can be cashed.

Other Forms of Cheques:

We have;

• Stale cheque
• Post-dated cheque
• Dishonoured cheque
• Bounced cheque

5. Stale Cheque:

A stale cheque is a type of cheque that has been in circulation for an unreasonably long period, hence the date of presentation for payment has expired.

The bank will refuse to honour a cheque that is more than six months old because it is considered expired.

6. Post-dated Cheque:

Post-dated cheques bear a date later than the current date on which they are drawn. It is dated for some future time. Such cheques cannot be cashed before the date stated.

7. Dishonoured Cheque:

A dishonoured cheque is one which a bank, for some reason, has refused to pay on presentation.

Such cheques generally have some explanatory phrase written on them when stating the reason why such cheques cannot be paid or honoured.

Example:

• R/D means Refer to drawer; This means that the bank is unable to honor the check and is returning it to the depositor because of issues such as insufficient funds or issues with the account.

• I/F means insufficient funds;

• P/S means payment stopped;

• A/C means account closed, etc.

8. Bounced Cheque (Dud Cheque)

A bounced cheque is a dishonoured cheque but not all dishonoured cheques are bounced cheques.

When cheques are dishonoured for being stale as a result of the drawer’s death, for irregular signature, and so on, the situation can be normally reasoned.

A cheque can be dishonoured if certain requirements are not met. In situations where a cheque is dishonoured because the customer has no money in the account, the cheque drawn by such a customer is a bounced cheque.