A cheque is a written order by a customer to a bank to pay cash or to transfer money on deposit to another account. It is convenient but not legally compulsory to use a form provided by the bank for this purpose. Cheques will not normally be honored by the bank unless the customer has a sufficient credit balance or an agreed overdraft facility. Cheques were once convenient and very widely accepted; but they are not legal tender, and there is no compulsion to accept them. An increasing number of businesses are not accepting cheques as credit and debit cards become more ubiquitous.
Historical Context
Cheques have a long history dating back to ancient times when they were used as promissory notes. The modern form of cheques began to take shape in the 17th century in England. The development of a formal banking system spurred the widespread use of cheques.
Key Historical Events
- 1659: First known mention of a cheque in England.
- 1717: The Bank of England pioneered the use of printed cheques.
- 20th Century: The introduction of magnetic ink character recognition (MICR) in the 1950s streamlined cheque processing.
Types/Categories of Cheques
- Bearer Cheque: Payable to anyone who presents it at the bank.
- Order Cheque: Payable to a specific person or entity.
- Crossed Cheque: Cannot be encashed and must be deposited into a bank account.
- Post-dated Cheque: Can only be cashed on or after the date written on it.
- Stale Cheque: Presented after a significant period from its date of issue (usually six months).
- Traveller’s Cheque: Issued for travel purposes and can be encashed around the world.
Detailed Explanation
A cheque involves several key components:
- Drawer: The account holder who writes the cheque.
- Drawee: The bank responsible for honoring the cheque.
- Payee: The recipient of the cheque.
- Amount: The monetary value to be paid.
- Date: The date on which the cheque is written.
- Signature: The drawer’s signature validating the cheque.
Importance and Applicability
- Convenience: Cheques offer a convenient way to transfer money without handling cash.
- Record-keeping: Cheques provide a written record of transactions.
- Security: A cheque can be stopped or cancelled in case of loss or theft, adding a layer of security.
Examples
- Personal Use: Writing a cheque to pay rent or a utility bill.
- Business Transactions: Companies issuing cheques to suppliers.
Considerations
- Sufficient Funds: Ensure that there are enough funds in the account to cover the cheque.
- Forgery: Be cautious of cheque fraud and forgeries.
- Deposit Times: Understanding that cheques can take several days to clear.
Related Terms with Definitions
- Bank Draft: A cheque drawn by a bank on its funds in another bank.
- Endorsement: The act of signing the back of a cheque to transfer ownership.
- Clearing: The process of transferring the funds indicated on the cheque.
Interesting Facts
- The largest cheque ever written was for $9.7 billion by Berkshire Hathaway for the purchase of Pacificorp.
- Traveler’s cheques were widely used before credit and debit cards became popular.
Famous Quotes
- “Writing a check separates responsibility from purchase.” – Steven Wright
Proverbs and Clichés
- “As good as a cheque in the bank.”
- “Cheque your balance before you bounce.”
Jargon and Slang
- Rubber Cheque: A cheque that bounces due to insufficient funds.
- Blank Cheque: A cheque with a signature and no specified amount.
FAQs
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What is the validity period of a cheque?
- Typically, a cheque is valid for six months from the date of issuance unless otherwise specified by the bank.
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Can a cheque be stopped after issuance?
- Yes, a cheque can be stopped if the account holder instructs the bank to do so before it is cashed.
References
- The History of Cheques - Journal of Banking and Finance, 2005.
- Cheque Fraud and Prevention - Bankers Association Report, 2020.
Summary
Cheques have played an important role in financial transactions for centuries, providing a convenient and secure way to transfer funds. Despite their decline in popularity due to electronic payments, cheques still hold relevance in certain contexts. Understanding their components, types, and applicable regulations is crucial for efficient financial management.
