![1933 South African cheque](https://upload.wikimedia.org/wikipedia/commons/b/bd/1933_South_African_cheque.jpg)
A cheque, or check (
American English
American English, sometimes called United States English or U.S. English, is the set of variety (linguistics), varieties of the English language native to the United States. English is the Languages of the United States, most widely spoken lan ...
;
see spelling differences) is a document that orders a
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
(or
credit union
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the ''
drawer
A drawer is a box-shaped container inside a piece of furniture that can be pulled out horizontally to access its contents. Drawers are built into numerous types of furniture, including cabinets, chests of drawers (bureaus), desks, and the ...
'', has a
transaction banking account (often called a current, cheque, chequing, checking, or share draft account) where the money is held. The drawer writes various details including the
monetary
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
amount, date, and a
payee
A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...
on the cheque, and signs it, ordering their bank, known as the ''drawee'', to pay the amount of money stated to the payee.
Although forms of cheques have been in use since ancient times and at least since the 9th century, they became a highly popular non-
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
method for making
payment
A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the p ...
s during the 20th century and usage of cheques peaked. By the second half of the 20th century, as cheque processing became automated, billions of cheques were issued annually; these volumes peaked in or around the early 1990s. Since then cheque usage has fallen, being partly replaced by electronic payment systems, such as
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s and
credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s. In an increasing number of countries cheques have either become a marginal
payment system
A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago ...
or have been completely phased out.
Nature of a cheque
A cheque is a
negotiable instrument instructing a
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial inst ...
to pay a specific amount of a specific currency from a specified
transactional account
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...
held in the drawer's name with that institution. Both the drawer and payee may be
natural person
In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the bro ...
s or
legal entities
In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...
. Cheques are ''order instruments'', and are not in general payable simply to the bearer as
bearer instrument
A bearer instrument is a document that entitles the holder of the document to rights of ownership or title to the underlying property, such as shares or bonds. Unlike normal registered instruments, no record is kept of who owns bearer instruments ...
s are, but must be paid to the payee. In some countries, such as the US, the payee may endorse the cheque, allowing them to specify a third party to whom it should be paid.
Cheques are a type of
bill of exchange
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
that were developed as a way to make payments without the need to carry large amounts of money.
Paper money
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes were originally issued ...
evolved from
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s, another form of negotiable instrument similar to cheques in that they were originally a written order to pay the given amount to whoever had it in their possession (the "
bearer").
Spelling and etymology
''Check'' is the original spelling.
The newer spelling, ''cheque'', is believed to have come into use around 1828, when the switch was made by
James William Gilbart
James William Gilbart (1794–1863) was an English banker and author.
Life
He was the General Manager of the London and Westminster Bank 1833–1859, one of the first joint-stock banks in England.
His work and frequently updated books such ...
in his ''Practical Treatise on Banking''.
The spellings ''check'', ''checque'', and ''cheque'' were used interchangeably from the 17th century until the 20th century.
However, since the 19th century, in the
Commonwealth
A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
and Ireland, the spelling ''cheque'' (from the French word ''chèque'') has become standard for the financial instrument, while ''check'' is used only for other meanings, thus distinguishing the two definitions in writing.
In
American English
American English, sometimes called United States English or U.S. English, is the set of variety (linguistics), varieties of the English language native to the United States. English is the Languages of the United States, most widely spoken lan ...
, the usual spelling for both is ''check''.
Etymological dictionaries attribute the financial meaning of ''check'' to come from "a check against forgery", with the use of "check" to mean "control" stemming from a
check in chess, a term which came into English through French, Latin, Arabic and ultimately from the Persian word ''
shah
Shah (; fa, شاه, , ) is a royal title that was historically used by the leading figures of Iranian monarchies.Yarshater, EhsaPersia or Iran, Persian or Farsi, ''Iranian Studies'', vol. XXII no. 1 (1989) It was also used by a variety of ...
'', or "
king
King is the title given to a male monarch in a variety of contexts. The female equivalent is queen, which title is also given to the consort of a king.
*In the context of prehistory, antiquity and contemporary indigenous peoples, the tit ...
".
History
The cheque had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a ''
bill of exchange
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
''. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (for example, gold) to purchase goods and services.
Early years
There is early evidence of using bill of exchange. In India, during the
Maurya Empire
The Maurya Empire, or the Mauryan Empire, was a geographically extensive Iron Age historical power in the Indian subcontinent based in Magadha, having been founded by Chandragupta Maurya in 322 BCE, and existing in loose-knit fashion until 1 ...
(from 321 to 185 BC), a commercial instrument called the adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person.
The ancient Romans are believed to have used an early form of cheque known as ''praescriptiones'' in the 1st century BC.
Beginning in the third century AD, banks in
Persian
Persian may refer to:
* People and things from Iran, historically called ''Persia'' in the English language
** Persians, the majority ethnic group in Iran, not to be conflated with the Iranic peoples
** Persian language, an Iranian language of the ...
territory began to issue letters of credit. These letters were termed ''čak'', meaning "document" or "contract". The ''čak'' became the ''sakk'' later used by traders in the
Abbasid Caliphate
The Abbasid Caliphate ( or ; ar, الْخِلَافَةُ الْعَبَّاسِيَّة, ') was the third caliphate to succeed the Islamic prophet Muhammad. It was founded by a dynasty descended from Muhammad's uncle, Abbas ibn Abdul-Muttalib ...
and other Arab-ruled lands.
Transporting a paper ''sakk'' was more secure than transporting money. In the ninth century, a merchant in one country could cash a ''sakk'' drawn on his bank in another country.
The Persian poet, Ferdowsi, used the term "cheque" several times in his famous book, Shahnameh, when referring to the Sasanid dynasty.
Ibn Hawqal
Muḥammad Abū’l-Qāsim Ibn Ḥawqal (), also known as Abū al-Qāsim b. ʻAlī Ibn Ḥawqal al-Naṣībī, born in Nisibis, Upper Mesopotamia; was a 10th-century Arab Muslim writer, geographer, and chronicler who travelled during the ye ...
, living in the 10th century, quotes the use of a cheque worth 42,000
dinars
The dinar () is the principal currency unit in several countries near the Mediterranean Sea, and its historical use is even more widespread.
The modern dinar's historical antecedents are the gold dinar and the silver dirham, the main coin o ...
in the
Ghana Empire
The Ghana Empire, also known as Wagadou ( ar, غانا) or Awkar, was a West African empire based in the modern-day southeast of Mauritania and western Mali that existed from c. 300 until 1100. The Empire was founded by the Soninke people, ...
of West Africa.
In the 13th century the ''bill of exchange'' was developed in
Venice
Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400 ...
as a legal device to allow international trade without the need to carry large amounts of gold and silver. Their use subsequently spread to other European countries.
In the early 1500s, to protect large accumulations of cash, people in the
Dutch Republic
The United Provinces of the Netherlands, also known as the (Seven) United Provinces, officially as the Republic of the Seven United Netherlands (Dutch: ''Republiek der Zeven Verenigde Nederlanden''), and commonly referred to in historiography ...
began depositing their money with "cashiers". These cashiers held the money for a fee. Competition drove cashiers to offer additional services including paying money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment. This concept went on to spread to England and elsewhere.
Modern era
By the 17th century, bills of exchange were being used for domestic payments in England. Cheques, a type of bill of exchange, then began to evolve. Initially, they were called ''drawn notes'', because they enabled a customer to draw on the funds that he or she had in the account with a bank and required immediate payment. These were handwritten, and one of the earliest known still to be in existence was drawn on Messrs Morris and Clayton,
scrivener
A scrivener (or scribe) was a person who could read and write or who wrote letters to court and legal documents. Scriveners were people who made their living by writing or copying written material. This usually indicated secretarial and ad ...
s and bankers based in the
City of London
The City of London is a city, ceremonial county and local government district that contains the historic centre and constitutes, alongside Canary Wharf, the primary central business district (CBD) of London. It constituted most of London fr ...
, and dated 16 February 1659.
In 1717, the
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
pioneered the first use of a pre-printed form. These forms were printed on "cheque paper" to prevent fraud, and customers had to attend in person and obtain a numbered form from the cashier. Once written, the cheque was brought back to the bank for settlement. The suppression of banknotes in eighteenth-century England further promoted the use of cheques.
Until about 1770, an informal exchange of cheques took place between London banks. Clerks of each bank visited all the other banks to exchange cheques while keeping a tally of balances between them until they settled with each other. Daily
cheque clearing
Cheque clearing (or check clearing in American English) or bank clearance is the process of moving cash (or its equivalent) from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the c ...
began around 1770 when the bank clerks met at the Five Bells, a tavern in
Lombard Street in the City of London, to exchange all their cheques in one place and settle the balances in cash. This was the first
bankers' clearing house
Cheque clearing (or check clearing in American English) or bank clearance is the process of moving cash (or its equivalent) from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the c ...
.
Provincial clearinghouses were established in major cities throughout the UK to facilitate the clearing of cheques on banks in the same town. Birmingham, Bradford, Bristol, Hull, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham, Sheffield, and Southampton all had their own clearinghouses.
In America, the Bank of New York began issuing cheques after its establishment by Alexander Hamilton in 1784. The oldest surviving example of a complete American chequebook from the 1790s was discovered by a family in New Jersey. The documents are in some ways similar to modern-day cheques, with some data pre-printed on sheets of paper alongside blank spaces for where other information could be hand-written as needed.
It is thought that the
Commercial Bank of Scotland
The Commercial Bank of Scotland Ltd. was a Scottish commercial bank. It was founded in Edinburgh in 1810, and obtained a royal charter in 1831. It grew substantially through the 19th and early 20th centuries, until 1958, when it merged with th ...
was the first bank to personalize its customers' cheques, in 1811, by printing the name of the account holder vertically along the left-hand edge. In 1830 the
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
introduced books of 50, 100, and 200 forms and counterparts, bound or stitched. These ''cheque books'' became a common format for the distribution of cheques to bank customers.
In the late 19th century, several countries formalized laws regarding cheques. The UK passed the
Bills of Exchange Act 1882
The Bills of Exchange Act 1882 is a United Kingdom Act of Parliament concerning bills of exchange. The Act was drafted by Sir Mackenzie Chalmers, who later drafted the Sale of Goods Act 1893 and the Marine Insurance Act 1906.
Bills of exchange ...
, and India passed the
Negotiable Instruments Act, 1881
Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is still in force largely unchanged.
History
The history of the present Act is a long one. The Act was originally drafted in 1866 by the 3rd India ...
;
which both covered cheques.
![English 1956 Westminster Bank cheque of Doris Ogilvie](https://upload.wikimedia.org/wikipedia/commons/0/07/English_1956_Westminster_Bank_cheque_of_Doris_Ogilvie.jpg)
In 1931, an attempt was made to simplify the international use of cheques by the Geneva Convention on the Unification of the Law Relating to Cheques. Many European and South American states, as well as Japan, joined the convention. However, countries including the US and members of the
British Commonwealth
The Commonwealth of Nations, simply referred to as the Commonwealth, is a political association of 56 member states, the vast majority of which are former territories of the British Empire. The chief institutions of the organisation are the Co ...
did not participate and so it remained very difficult for cheques to be used across country borders.
In 1959 a standard for machine-readable characters (
MICR
Magnetic ink character recognition code, known in short as MICR code, is a character recognition technology used mainly by the banking industry to streamline the processing and clearance of cheques and other documents. MICR encoding, called the ' ...
) was agreed upon and patented in the US for use with cheques. This opened the way for the first automated reader/sorting machines for clearing cheques. As automation increased, the following years saw a dramatic change in the way in which cheques were handled and processed. Cheque volumes continued to grow; in the late 20th century, cheques were the most popular non-
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
method for making payments, with billions of them processed each year. Most countries saw cheque volumes peak in the late 1980s or early 1990s, after which electronic payment methods became more popular and the use of cheques declined.
In 1969
cheque guarantee card
A cheque guarantee card was an abbreviated portable letter of credit granted by a bank to a qualified depositor in the form of a plastic card that was used in conjunction with a cheque.
The scheme provided retailers accepting cheques with great ...
s were introduced in several countries, allowing a retailer to confirm that a cheque would be honored when used at a
point of sale
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
. The drawer would sign the cheque in front of the retailer, who would compare the signature to the signature on the card and then write the cheque-guarantee-card number on the back of the cheque. Such cards were generally phased out and replaced by
debit cards, starting in the mid-1990s.
From the mid-1990s, many countries enacted laws to allow for
cheque truncation
Cheque truncation (check truncation in American English) is a cheque clearance system that involves the digitization of a physical paper cheque into a substitute electronic form for transmission to the paying bank. The process of cheque cleara ...
, in which a physical cheque is converted into electronic form for transmission to the paying bank or clearing-house. This eliminates the cumbersome physical presentation and saves time and processing costs.
In 2002, the
Eurocheque
The Eurocheque was a type of cheque used in Europe that was accepted across national borders and which could be written in a variety of currencies.
Eurocheques were originally introduced in 1969 as an alternative to the traveler's cheque and for i ...
system was phased out and replaced with domestic clearing systems. Old Eurocheques could still be used, but they were now processed by national clearing systems. At that time, several countries took the opportunity to phase out the use of cheques altogether. As of 2010, many countries have either phased out the use of cheques altogether or signaled that they would do so in the future.
Parts of a cheque
![BritishChequeAnnotated](https://upload.wikimedia.org/wikipedia/commons/8/8e/BritishChequeAnnotated.png)
The four main items on a cheque are:
* ''Drawer'': the person or entity whose transaction account is to be drawn. Usually, the drawer's name and account is preprinted on the cheque, and the drawer is usually the signatory.
* ''Payee'': the person or entity who is to be paid the amount.
* ''Drawee'': the bank or other financial institution where the cheque can be presented for payment. This is usually preprinted on the cheque.
* ''Amount'': the currency amount. The amount and currency (e.g., dollars, pounds, etc.) usually must be written in words and in figures. The currency is usually the local currency, but may be a foreign currency.
As cheque usage increased during the 19th and 20th centuries, additional items were added to increase security or to make processing easier for the financial institution. A signature of the drawer was required to authorize the cheque, and this is the main way to authenticate the cheque. Second, it became customary to write the amount in words as well as in numbers to avoid mistakes and make it harder to fraudulently alter the amount after the cheque had been written. It is not a legal requirement to write the amount in words, although some banks will refuse to accept cheques that do not have the amount in both numbers and words.
An issue date was added, and cheques may become invalid a certain amount of time after issue. In the US and Canada,
a cheque is typically valid for six months after the date of issue, after which it is a ''
stale-dated cheque,'' but this depends on where the cheque is drawn. In Australia, a cheque is typically valid for fifteen months of the cheque date.
A cheque that has an issue date in the future, a
post-dated cheque In banking, a post-dated cheque is a cheque written by the drawer (payer) for a date in the future.
Whether a post-dated cheque may be cashed or deposited before the date written on it depends on the country. A Canadian bank, for example, is not ...
, may not be able to be presented until that date has passed. In some countries writing a post dated cheque may simply be ignored or is illegal. Conversely, an
antedated cheque In banking, antedated refers to cheques which have been written by the drawer, and dated at some point in the past. In the United States antedated cheques are described in the Uniform Commercial Code
The Uniform Commercial Code (UCC), first publi ...
has an issue date in the past.
A cheque number was added and cheque books were issued so that cheque numbers were sequential. This allowed for some basic fraud detection by banks and made sure one cheque was not presented twice.
In some countries, such as the US, cheques may contain a memo line where the purpose of the cheque can be indicated as a convenience without affecting the official parts of the cheque. In the United Kingdom a memo line is not available and such notes may be written on the reverse side of the cheque.
In the US, at the top (when cheque oriented vertically) of the reverse side of the cheque, there are usually one or more blank lines labelled something like "Endorse here".
Starting in the 1960s, machine-readable routing and account information was added to the bottom of cheques in
MICR
Magnetic ink character recognition code, known in short as MICR code, is a character recognition technology used mainly by the banking industry to streamline the processing and clearance of cheques and other documents. MICR encoding, called the ' ...
format, which allowed automated sorting and routing of cheques between banks and led to automated central clearing facilities. The information provided at the bottom of the cheque is country-specific and standards are set by each country's cheque clearing system. This means that the payee no longer has to go to the bank that issued the cheque, they can instead deposit it at their own bank or any other bank and the cheque would be routed back to the originating bank, and funds transferred to their own bank account.
In the US, the bottom -inch (16 mm) of the cheque is reserved for MICR characters only. Intrusion into the MICR area can cause problems when the cheque runs through the clearinghouse, requiring someone to print an MICR cheque correction strip and glue it to the cheque. Many new ATMs do not use deposit envelopes and actually scan the cheque at the time it is deposited and will reject cheques due to handwriting incursion which interferes with reading the MICR. This can cause considerable inconvenience as the depositor may have to wait days for the bank to be open and may have difficulty getting to the bank even when they are open; this can delay the availability of the portion of a deposit which their bank makes available immediately as well as the balance of the deposit. Terms of service for many mobile (cell phone camera) deposits also require the MICR section to be readable. Not all of the MICR characters have been printed at the time the cheque is written, as additional characters will be printed later to encode the amount; thus a sloppy signature could obscure characters that will later be printed there. Since MICR characters are no longer necessarily printed in magnetic ink and will be scanned by optical rather than magnetic means, the readers will be unable to distinguish pen ink from pre-printed magnetic ink; these changes allow cheques to be printed on ordinary home and office printers without requiring pre-printed cheque forms, allow ATM deposit capture, allow
mobile deposits, and facilitate electronic copies of cheques.
For additional protection, a cheque can be
crossed, which restricts the use of the cheque so that the funds must be paid into a bank account. The format and wording varies from country to country, but generally two parallel lines may be placed either vertically across the cheque or in the top left hand corner. In addition the words 'or bearer' must not be used, or if pre-printed on the cheque must be crossed out on the payee line. If the cheque is crossed with the words 'Account Payee' or similar then the cheque can only be paid into the bank account of the person initially named as the payee, thus it cannot be endorsed to a different payee.
Attached documents
Cheques sometimes include additional documents. A page in a chequebook may consist of both the cheque itself and a stub or ' – when the cheque is written, only the cheque itself is detached, and the stub is retained in the chequebook as a record of the cheque. Alternatively, cheques may be recorded with carbon paper behind each cheque, in ledger sheets between cheques or at the back of a chequebook, or in a completely separate transaction register that comes with a chequebook.
When a cheque is mailed, a separate letter or "
remittance advice
Remittance advice is a letter sent by a customer to a supplier to inform the supplier that their invoice has been paid. If the customer is paying by cheque, the remittance advice often accompanies the cheque. The advice may consist of a literal ...
" may be attached to inform the recipient of the purpose of the cheque – formally, which account receivable to credit the funds to. This is frequently done formally using a provided slip when paying a bill, or informally via a letter when sending an ad hoc cheque.
Usage
![Sweet success](https://upload.wikimedia.org/wikipedia/commons/2/23/Sweet_success.jpg)
Parties to regular cheques generally include a ''drawer'', the depositor writing a cheque; a ''drawee,'' the financial institution where the cheque can be presented for payment; and a ''payee,'' the entity to whom the drawer issues the cheque. The drawer ''drafts'' or ''draws'' a cheque, which is also called ''cutting a cheque'', especially in the US. There may also be a ''beneficiary''—for example, in depositing a cheque with a custodian of a brokerage account, the payee will be the custodian, but the cheque may be marked "F/B/O" ("for the benefit of") the beneficiary.
Ultimately, there is also at least one ''endorsee'' which would typically be the financial institution servicing the payee's account, or in some circumstances may be a third party to whom the payee owes or wishes to give money.
A payee that accepts a cheque will typically
deposit it in an account at the payee's bank, and have the bank process the cheque. In some cases, the payee will take the cheque to a branch of the drawee bank, and cash the cheque there. If a cheque is refused at the drawee bank (or the drawee bank returns the cheque to the bank that it was deposited at) because there are insufficient funds for the cheque to clear, it is said that the cheque has been ''
dishonoured''. Once a cheque is approved and all appropriate accounts involved have been credited, the cheque is stamped with some kind of cancellation mark, such as a "paid" stamp. The cheque is now a ''cancelled cheque''. Cancelled cheques are placed in the account holder's file. The account holder can request a copy of a cancelled cheque as proof of a payment. This is known as the cheque clearing cycle.
Cheques can be lost or go astray within the cycle, or be delayed if further verification is needed in the case of suspected fraud. A cheque may thus bounce some time after it has been deposited.
![110512-F-PO994-029 Annual Volunteer Recognition Ceremony 2011 Moody Air Force Base](https://upload.wikimedia.org/wikipedia/commons/d/d8/110512-F-PO994-029_Annual_Volunteer_Recognition_Ceremony_2011_Moody_Air_Force_Base.jpg)
Following concerns about the amount of time it took the
Cheque and Credit Clearing Company
The Cheque and Credit Clearing Company Limited (C&CCC) is a UK membership-based industry body whose 11 members are the UK clearing banks. The company has managed the cheque clearing system in England and Wales since 1985, in all of Great Britain ...
to clear cheques, the United Kingdom
Office of Fair Trading
The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
set up a working group in 2006 to look at the cheque clearing cycle. Their report said that clearing times could be improved, but that the costs associated with speeding up the cheque clearing cycle could not be justified considering the use of cheques was declining.
However, they concluded the biggest problem was the unlimited time a bank could take to dishonour a cheque. To address this, changes were implemented so that the maximum time after a cheque was deposited that it could be dishonoured was six days, what was known as the "certainty of fate" principle.
An advantage to the drawer of using cheques instead of
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
transactions, is that they know the drawer's bank will not release the money until several days later. Paying with a cheque and making a deposit before it clears the drawer's bank is called "
kiting" or "floating" and is generally illegal in the US, but rarely enforced unless the drawer uses multiple chequing accounts with multiple institutions to increase the delay or to steal the funds.
Declining use
Cheque usage has been declining for some years, both for
point of sale
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
transactions (for which
credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s and
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s are increasingly preferred) and for third party payments (for example, bill payments), where the decline has been accelerated by the emergence of telephone banking,
online banking
Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial inst ...
, and
mobile banking
Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct financial transactions remotely using a mobile device such as a smartphone or tablet. Unlike the related internet banking it uses ...
. Being paper-based, cheques are costly for banks to process in comparison to electronic payments, so banks in many countries now discourage the use of cheques, either by charging for cheques or by making the alternatives more attractive to customers. In particular the handling of money transfer requires more effort and is time-consuming. The cheque has to be handed over in person or sent through mail. The rise of
automated teller machine
An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fun ...
s (ATMs) means that small amounts of cash are often easily accessible, so that it is sometimes unnecessary to write a cheque for such amounts instead.
Alternatives to cheques
Payment system
A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago ...
s other than cheques include:
#
Cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
#
Debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
payments
#
Credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
payments
#
Direct debit A direct debit or direct withdrawal is a financial transaction in which one organisation withdraws funds from a payer's bank account., https://www.directdebit.co.uk/direct-debit-explained/what-is-direct-debit/ Formally, the organisation that calls f ...
(initiated by payee)
#
Direct credit
A direct deposit (or direct credit), in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' acco ...
(initiated by payer),
ACH in US,
giro in Europe,
Direct Entry in Australia
#
Wire transfer
Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash ...
(local and international) via banks and credit unions or else via major private vendors such as
Western Union
The Western Union Company is an American multinational financial services company, headquartered in Denver, Colorado.
Founded in 1851 as the New York and Mississippi Valley Printing Telegraph Company in Rochester, New York, the company chang ...
and
MoneyGram
MoneyGram International, Inc. is an American cross-border Peer-to-peer, P2P payments and electronic funds transfer, money transfer company based in the United States with headquarters in Dallas, Dallas, Texas. It has an operations center in St. L ...
#
Electronic bill payment
Electronic bill payment is a feature of online, mobile and telephone banking, similar in its effect to a giro, allowing a customer of a financial institution to transfer money from their transaction or credit card account to a creditor or ven ...
s using
Internet banking
Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial inst ...
#
Online payment services, e.g.
PayPal
PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers, and serves as an electronic alternative to traditional paper ...
,
Venmo
Venmo is an American mobile payment service founded in 2009 and owned by PayPal since 2013. Venmo was aimed at friends and family who wish to split bills, e.g. for movies, dinner, rent, or event tickets etc. Account holders can transfer funds ...
,
Unified Payments Interface
Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. It is used ...
,
PhonePe
PhonePe is an Indian digital payments and financial technology company headquartered in Bengaluru, Karnataka, India. PhonePe was founded in December 2015, by Sameer Nigam, Rahul Chari and Burzin Engineer. The PhonePe app, based on the Unified ...
,
Paytm
Paytm (acronym for "pay through mobile") is an Indian digital payments and financial services company, based in Noida. It was founded in 2010 by Vijay Shekhar Sharma under One97 Communications. The company offers mobile payment services to co ...
and
Worldpay
#
Money orders
A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque.
History
The money order system was established by a private firm in Great Britain in 1792 and was ...
Variations on regular cheques
In addition to regular cheques, a number of variations were developed to address specific needs or address issues when using a regular cheque.
Cashier's cheques and bank drafts
Cashier's cheques and
banker's draft
A banker's draft (also called a bank cheque, bank draft in Canada or, in the US, a teller's check) is a cheque (or check) provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on a ...
s, also known as bank cheques, banker's cheques or treasurer's cheques, are cheques issued against the funds of a financial institution rather than an individual account holder. Typically, the term ''cashier's check'' is used in the US and ''banker's draft'' is used in the UK and most of the Commonwealth. The mechanism differs slightly from country to country but in general the bank issuing the cheque or draft will allocate the funds at the point the cheque is drawn. This provides a guarantee, save for a failure of the bank, that it will be honoured. Cashier's cheques are perceived to be as good as cash but they are still a cheque, a misconception sometimes exploited by scam artists. A lost or stolen cheque can still be stopped like any other cheque, so payment is not completely guaranteed.
Certified cheque
When a
certified cheque
A certified check (or certified cheque) is a form of check for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. Those funds are then set aside in the bank's ...
is drawn, the bank operating the account verifies there are currently sufficient funds in the drawer's account to honour the cheque. Those funds are then set aside in the bank's internal account until the cheque is cashed or returned by the payee. Thus, a certified cheque cannot "bounce", and its liquidity is similar to cash, absent failure of the bank. The bank indicates this fact by making a notation on the face of the cheque (technically called an ''acceptance'').
Payroll cheque
A cheque used to pay wages may be referred to as a
payroll cheque. Even when the use of cheques for
paying wages and salaries became rare, the vocabulary "pay cheque" still remained commonly used to describe the payment of wages and salaries. Payroll cheques issued by the military to soldiers, or by some other government entities to their employees, beneficiants, and creditors, are referred to as
warrants.
Warrants
Warrants look like cheques and clear through the banking system like cheques, but are not drawn against cleared funds in a
deposit account
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
...
. A cheque differs from a warrant in that the warrant is not necessarily payable on demand and may not be negotiable. They are often issued by government entities such as the military to pay wages or suppliers. In this case they are an instruction to the entity's treasurer department to pay the warrant holder on demand or after a specified maturity date.
Traveller's cheque
A
traveller's cheque
A traveller's cheque is a medium of exchange that can be used in place of hard currency. They can be denominated in one of a number of major world currencies and are preprinted, fixed-amount cheques designed to allow the person signing it to ma ...
is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the issuer for that privilege. Traveller's cheques can usually be replaced if lost or stolen, and people frequently used them on holiday instead of cash as many businesses used to accept traveller's cheques as currency. The use of
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
or
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s has begun to replace the traveller's cheque as the standard for vacation money due to their convenience and additional security for the retailer. As a result, many businesses no longer accept traveller's cheques.
Money or postal order
A cheque sold by a post office, bank, or merchant such as a grocery store for payment in favour of a third party is referred to as a
money order
A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque.
History
The money order system was established by a private firm in Great Britain in 1792 and was ...
or
postal order
A postal order or postal note is a type of money order usually intended for sending money through the mail. It is purchased at a post office and is payable at another post office to the named recipient. A fee for the service, known as poundage, ...
. These are paid for in advance when the order is drawn and are guaranteed by the institution that issues them and can only be paid to the named third party. This was a common way to send low value payments to third parties, avoiding the risks associated with sending cash by post, prior to the advent of electronic payment methods.
Oversized cheques
![Ansari X-Prize Check](https://upload.wikimedia.org/wikipedia/commons/2/23/Ansari_X-Prize_Check.jpg)
Oversized cheques are often used in public events such as donating money to charity or giving out prizes such as
Publishers Clearing House
Publishers Clearing House (PCH) is a direct marketing company that markets merchandise and magazine subscriptions with sweepstakes and prize-based games.
It was founded in 1953 by Harold Mertz to replace door-to-door magazine subscription sal ...
. The cheques are commonly in size;
however, according to the ''
Guinness Book of World Records
''Guinness World Records'', known from its inception in 1955 until 1999 as ''The Guinness Book of Records'' and in previous United States editions as ''The Guinness Book of World Records'', is a reference book published annually, listing world ...
'', the largest ever is . Until recently, regardless of the size, such cheques could still be redeemed for their cash value as long as they would have the same parts as a normal cheque, although usually the oversized cheque is kept as a souvenir and a normal cheque is provided.
Any bank could levy additional charges for clearing an oversized cheque. Most banks need to have the machine-readable information on the bottom of cheques read electronically, so only very limited dimensions can be allowed due to standardised equipment.
Payment vouchers
In the US some
public assistance
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
programmes such as the
, or
Aid to Families with Dependent Children
Aid to Families with Dependent Children (AFDC) was a federal assistance program in the United States in effect from 1935 to 1997, created by the Social Security Act (SSA) and administered by the United States Department of Health and Human Serv ...
make ''vouchers'' available to their beneficiaries, which are good up to a certain monetary amount for purchase of grocery items deemed eligible under the particular programme. The voucher can be deposited like any other cheque by a participating supermarket or other approved business.
Cheques around the world
Asia
In many Asian countries cheques were never widely used and generally only used by the wealthy, with
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
being used for the majority of payments. Where cheques were used they have been declining rapidly, by 2009 there was negligible consumer cheque usage in Japan, South Korea and
Taiwan
Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the nort ...
. This declining trend was accelerated by these developed markets advanced financial services infrastructure. Many of the developing countries in Asia have seen an increasing use of
electronic payment
An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
systems, 'leap-frogging' the less efficient chequing system altogether.
India
India is one of the few countries in Asia that did have significant cheque usage. It had a long tradition of using cheques and passed laws formalising cheque usage as early as 1881. In 2009 cheques were still widely used as a means of payment in trade, and also by individuals to pay other individuals or utility bills. One of the reasons was that banks usually provided cheques for free to their individual account holders. However, cheques are now rarely accepted at
point of sale
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
in retail stores where cash and
cards are payment methods of choice. Electronic payment transfer continued to gain popularity in India and like other countries this caused a subsequent reduction in volumes of cheques issued each year. In 2009 the
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
reported there was a five percent decline in cheque usage compared to the previous year. In 2019, the Reserve Bank of India reported that while cheque usage continued to decline, the decrease was slow. The bank attributed the slow pace of the decline due to the fact that cheque volume had briefly increased after
demonetisation in 2016 before continuing to fall, as well as the efficiency of India's cheque clearing system.
Japan
In Japan, cheques are called , and are governed by .
Bounced cheques are called . If an account owner bounces two cheques in six months, the bank will suspend the account for two years. If the account belongs to a public company, their stock will also be suspended from trading on the stock exchange, which can lead to bankruptcy.
Canada
In Canada, cheque sizes and types, endorsement requirements and MICR tolerances are overseen by
Payments Canada
Canadian Payments Association, carrying on business under the brand name Payments Canada, is an organization that operates a payment clearing and settlement system in Canada. The Canadian Payments Association was established by the ''Canadian Pa ...
.
* Canadian cheques can legally be written in English, French or
Inuktitut
Inuktitut (; , syllabics ; from , "person" + , "like", "in the manner of"), also Eastern Canadian Inuktitut, is one of the principal Inuit languages of Canada. It is spoken in all areas north of the tree line, including parts of the provinces o ...
.
* A tele-cheque is a paper payment item that resembles a cheque except that it is neither created nor signed by the payer—instead it is created (and may be signed) by a third party on behalf of the payer. Under CPA Rules these are prohibited in the clearing system effective 1 January 2004.
Canada's usage of cheques is less than that of the US and is declining rapidly at the urging of the Canadian Banking Association. The Government of Canada claims it is 6.5 times more expensive to mail a cheque than to make a direct deposit. The Canadian Payments Association reported that in 2012, cheque use in Canada accounted for only 40% of total financial transactions. The
Interac
Interac is a Canadian interbank network that links financial institutions and other enterprises for the purpose of exchanging electronic financial transactions. Interac serves as the Canadian debit card system and the predominant funds transf ...
system, which allows instant fund transfers via
chip Chromatin immunoprecipitation (ChIP) is a type of immunoprecipitation experimental technique used to investigate the interaction between proteins and DNA in the cell. It aims to determine whether specific proteins are associated with specific genom ...
or
magnetic strip
The term digital card can refer to a physical item, such as a memory card on a camera, or, increasingly since 2017, to the digital content hosted
as a virtual card or cloud card, as a digital virtual representation of a physical card. They share ...
and
PIN
A pin is a device used for fastening objects or material together.
Pin or PIN may also refer to:
Computers and technology
* Personal identification number (PIN), to access a secured system
** PIN pad, a PIN entry device
* PIN, a former Dutch ...
, is widely used by merchants to the point that few brick and mortar merchants accept cheques. Many merchants accept Interac debit payments but not credit card payments, even though most Interac terminals can support credit card payments. Financial institutions also facilitate transfers between accounts within different institutions with the
Email Money Transfer
Interac e-Transfer (formerly Interac Email Money Transfer or EMT) is a Canadian funds transfer service between personal and business accounts in participating Canadian banks and other financial institutions, offered through Interac Corporation ...
(EMT) service.
Cheques are still used for government payments, payroll, rent, and utility bill payments, though
direct deposit
A direct deposit (or direct credit), in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' acco ...
s and online or telephone bill payments are more widely and increasingly used.
The Canadian government began phasing out all government cheques from April 2016.
A void cheque has a special code called a MICR (Magnetic Ink Character Recognition) that is used by the bank to process the payment. The MICR code consists of the cheque number, transit number, and account number. The MICR number on a cheque can be interpreted as follows:
* The first three or six digits on the left represent the cheque number.
* The next five digits represent the Transit Number (such as a bank branch).
* The next three digits represent the Financial Institution Number.
* The last 2 sets of a few digits represent the person’s Account Number.
Europe
In most European countries, cheques are now rarely used, even for third party payments. In these countries, it is standard practice for businesses to publish their bank details on invoices, to facilitate the receipt of payments by
giro. Even before the introduction of online banking, it has been possible in some countries to make payments to third parties using
ATMs, which may accurately and rapidly capture invoice amounts, due dates, and payee bank details via a bar code reader to reduce keying. In some countries, entering the bank account number results in the bank revealing the name of the payee as an added safeguard against fraud. In using a cheque, the onus is on the payee to initiate the payment, whereas with a giro transfer, the onus is on the payer to effect the payment (The writer of a paper cheque is pushing on a rope: he cannot force money out of his own account and into the destination's account. By writing the paper cheque, he is handing the far end of the rope to the payee, who will pull in his own good time. In contrast, giro is more akin to wire transfer, in that the payer pushes his money away towards the payee). The process is also procedurally more simple, as no cheques are ever posted, can claim to have been posted, or need banking or clearance.
In Germany, Austria, Switzerland, Liechtenstein, the Netherlands, Belgium, Luxembourg, Norway, Sweden, Finland, Denmark, and Iceland, giro transfers have been standard procedure since the 1950s for regular payments like rent and wages and even mail-order invoices. In the Netherlands, Austria, and Germany, many invoices are accompanied by so-called ' (Netherlands) or ' (German), which are essentially standardized bank transfer order forms preprinted with the payee's account details and the amount payable. The payer fills in his account details and hands the form to a clerk at his bank, which will then transfer the money. It is also very common to allow the payee to automatically withdraw the requested amount from the payer's account (''
Lastschrifteinzug'' (German) or ''
Incasso (machtiging)'' (Netherlands)). Though similar to paying by cheque, the payee only needs the payer's bank and account number. Since the early 1990s, this method of payment has also been available to merchants. Debit cards are widespread in these countries, since virtually all banks issue debit cards instead of simple
ATM card
An ATM card is a payment card or dedicated payment card issued by a financial institution (i.e. a bank) which enables a customer to access their financial accounts via its and others' automated teller machines (ATMs) and to make approved point of ...
s for use on current accounts. Acceptance of cheques has been further diminished since the late 1990s, because of the abolition of the
Eurocheque
The Eurocheque was a type of cheque used in Europe that was accepted across national borders and which could be written in a variety of currencies.
Eurocheques were originally introduced in 1969 as an alternative to the traveler's cheque and for i ...
. Cashing a foreign bank cheque is possible, but usually very expensive.
In Finland, banks stopped issuing personal cheques in about 1993 in favour of giro systems, which are now almost exclusively electronically initiated either via internet banking or payment machines located at banks and shopping malls. All
Nordic countries
The Nordic countries (also known as the Nordics or ''Norden''; literal translation, lit. 'the North') are a geographical and cultural region in Northern Europe and the Atlantic Ocean, North Atlantic. It includes the sovereign states of Denmar ...
have used an interconnected international giro system since the 1950s, and in Sweden, cheques are now almost totally abandoned; in Denmark, all banks stopped accepting cheques starting on 1 January 2017. Debit cards are now preferred for direct shop payments when not using cash. For large shop payments, such as car purchases, a type of cheque, a
money order
A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque.
History
The money order system was established by a private firm in Great Britain in 1792 and was ...
( sv, postväxel) is still used.
In Poland cheques were withdrawn from use in 2006, mainly because of lack of popularity due to the widespread adoption of
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
and
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s. Electronic payments across the European Union are now fast and inexpensive—usually free for consumers.
In the United Kingdom, Ireland, France as well as to some extent in Monaco, Italy and San Marino, cheques are still popular, partly because cheques remain free of charge to personal customers; however, bank-to-bank transfers are increasing in popularity. France, however, remains well ahead of its European counterparts in the use of cheque payments, as seen in 2020 where it's estimated that more than 1 billion cheque payments were made, compared to Italy, the country with the next highest number of payments, with under 100 million.
India
![Sample cheque](https://upload.wikimedia.org/wikipedia/commons/3/3c/Sample_cheque.jpeg)
The Cheque was introduced in India by the Bank of Hindustan, the first joint stock bank established in 1770. In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalising the usage and characteristics of instruments like the cheque, the bill of exchange, and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.
In 1938, the Calcutta Clearing Banks' Association, which was the largest bankers' association at that time, adopted clearing house.
Until 1 April 2012, cheques in India were valid for a period of six months from the date of their issue, before the
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
(RBI) issued a notification reducing their validity to three months from the date of issue.
Beginning in 2010, the RBI along with the
National Payments Corporation of India
The National Payments Corporation of India is an umbrella organization for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of ...
(NPCI) piloted the
cheque truncation system
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank of India (RBI), commenced in 2010, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque cl ...
(CTS). Under CTS, cheques are no longer physically transported to different clearing houses. They are processed at the bank where they are presented, where an image of the cheque using
Magnetic ink character recognition
Magnetic ink character recognition code, known in short as MICR code, is a character recognition technology used mainly by the banking industry to streamline the processing and clearance of cheques and other documents. MICR encoding, called the ' ...
(MICR) is captured and digitally transmitted.
Oceania
In Australia, following global trends, the use of cheques continues to decline. In 1994 the value of daily cheque transactions was A$25 billion; by 2004 this had dropped to only A$5 billion, and by 2018 this had dropped to only A$1 billion, with almost half of this for
B2B transactions. Personal cheque use is practically non-existent thanks to the longstanding use of the
EFTPOS
Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS ...
system,
BPAY
BPAY, (BPAY Group Holding Pty Ltd), is an Australian electronic bill payment SaaS company which facilitates payments made through a financial institution's online, mobile or telephone banking facility to organisations which are registered BPAY b ...
, electronic transfers, and debit cards.
In New Zealand, payments by cheque have declined since the mid-1990s in favour of electronic payment methods. In 1993, cheques accounted for over half of transactions through the national banking system, with an annual average of 130 cheques per capita. By 2006 cheques lagged well behind
EFTPOS
Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS ...
(
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
) transaction and electronic credits, making up only nine per cent of transactions, an annual average of 41 cheque transaction per capita.
Kiwibank
Kiwibank Limited is a New Zealand state-owned bank and financial services provider with approximately 4% of market share in terms of assets. Kiwibank is owned by the New Zealand Government and provides some of its banking services through i ...
stopped accepting cheques as payment on 28 February 2020, followed by
ANZ
ANZ may refer to:
People
* Anz (musician), a British DJ and electronic musician
Banks
* ANZ (bank), Australia and New Zealand Banking Group Limited, the fourth-largest bank in Australia
** ANZ Bank New Zealand, the largest bank in New Zealand
** ...
on 31 May 2021.
Westpac
Westpac Banking Corporation, known simply as Westpac, is an Australian multinational banking and financial services company headquartered at Westpac Place in Sydney, New South Wales.
Established in 1817 as the Bank of New South Wales, ...
and
BNZ
Bank of New Zealand (BNZ) is one of New Zealand's Big Four (banking), big four banks and has been operating in the country since the first office was opened in Auckland in October 1861 followed shortly after by the first branch in Dunedin in D ...
stopped accepting cheques on 25 June and 30 June 2021 respectively;
ASB was the last major bank to phase out cheques on 27 August 2021.
Australia
The Cheques Act 1986 is the body of law governing the issuance of cheques and payment orders in Australia. Procedural and practical issues governing the clearance of cheques and payment orders are handled by
Australian Payments Clearing Association
Australian Payments Network Limited (AusPayNet), formerly the Australian Payments Clearing Association (APCA) is the self-regulatory body set up by the payments industry to improve the safety, reliability, equity, convenience and efficiency of pa ...
(APCA).
In 1999, banks adopted a system to allow faster clearance of cheques by electronically transmitting information about cheques; this brought clearance times down from five to three days. Previously, cheques were required to be physically transported to the paying bank before processing began, and dishonoured cheques were physically returned.
All licensed banks in Australia may issue cheques in their own name. Non-banks are not permitted to issue cheques in their own name but may issue, and have drawn on them, payment orders (which functionally are no different from cheques).
New Zealand
Instrument-specific legislation includes the Cheques Act 1960, part of the Bills of Exchange Act 1908, which codifies aspects related to the cheque payment instrument, notably the procedures for the endorsement, presentment and payment of cheques. A 1995 amendment provided for the electronic presentment of cheques and removed the previous requirement to deliver cheques physically to the paying bank, opening the way for
cheque truncation
Cheque truncation (check truncation in American English) is a cheque clearance system that involves the digitization of a physical paper cheque into a substitute electronic form for transmission to the paying bank. The process of cheque cleara ...
and imaging. Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying bank's branch, instead of cumbersome physical presentment. This reduced the total cheque clearance time and eliminated the costs of physically moving the cheque.
The
registered banks under supervision of
Reserve Bank of New Zealand
The Reserve Bank of New Zealand (RBNZ, mi, Te Pūtea Matua) is the central bank of New Zealand. It was established in 1934 and is constituted under the Reserve Bank of New Zealand Act 1989. The governor of the Reserve Bank is responsible for N ...
provide the cheque payment services. Once banked, cheques are processed electronically together with other retail payment instruments. ''
Homeguard v Kiwi Packaging'' is often cited case law regarding the banking of cheques tendered as full settlement of disputed accounts.
In 2020 New Zealand Banks began phasing out of cheques, and they are no longer accepted as payment. All have moved to other types of payment systems
United Kingdom
In the UK all cheques must now conform to an industry standard detailing layout and font ("
Cheque and Credit Clearing Company
The Cheque and Credit Clearing Company Limited (C&CCC) is a UK membership-based industry body whose 11 members are the UK clearing banks. The company has managed the cheque clearing system in England and Wales since 1985, in all of Great Britain ...
(C&CCC) Standard 3"), be printed on a specific weight of paper (CBS1), and contain explicitly defined security features.
Since 1995, all cheque printers must be members of the Cheque Printer Accreditation Scheme (CPAS). The scheme is managed by the Cheque and Credit Clearing Company and requires that all cheques for use in the British clearing process are produced by accredited printers who have adopted stringent security standards.
The rules concerning crossed cheques are set out in Section 1 of the Cheques Act 1992 and prevent cheques being cashed by or paid into the accounts of third parties. On a crossed cheque the words "account payee only" (or similar) are printed between two parallel vertical lines in the centre of the cheque. This makes the cheque non-transferable and is to avoid cheques being endorsed and paid into an account other than that of the named payee. Crossing cheques basically ensures that the money is paid into an account of the intended beneficiary of the cheque.
Following concerns about the amount of time it took banks to clear cheques, the United Kingdom
Office of Fair Trading
The Office of Fair Trading (OFT) was a non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforced both consumer protection and competition law, acting as the United Kingdom's economic ...
set up a working group in 2006 to look at the cheque clearing cycle. They produced a report
recommending maximum times for the cheque clearing which were introduced in UK from November 2007.
In the report the date the credit appeared on the recipient's account (usually the day of deposit) was designated "T". At "T + 2" (two business days afterwards) the value would count for calculation of credit interest or overdraft interest on the recipient's account. At "T + 4" clients would be able to withdraw funds on current accounts or at "T + 6" on savings accounts (though this will often happen earlier, at the bank's discretion). "T + 6" is the last day that a cheque can bounce without the recipient's permission—this is known as "certainty of fate". Before the introduction of this standard (also known as 2-4-6 for current accounts and 2-6-6 for savings accounts), the only way to know the "fate" of a cheque has been "Special Presentation", which would normally involve a fee, where the drawee bank contacts the payee bank to see if the payee has that money at that time. "Special Presentation" had been stated at the time of deposit.
Cheque volumes peaked in 1990 when four billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the C&CCC, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings. As volumes started to fall, the challenges faced by the clearing banks were then of a different nature: how to benefit from technology improvements in a declining business environment.
Although the UK did not adopt the euro as its national currency when other European countries did in 1999, many banks began offering euro denominated accounts with chequebooks, principally to business customers. The cheques can be used to pay for certain goods and services in the UK. The same year, the C&CCC set up the euro cheque clearing system to process euro denominated cheques separately from sterling cheques in Great Britain.
The UK
Payments Council
The Payments Council was an organisation of financial institutions in the United Kingdom, which set strategy for UK payment mechanisms from 2007 until 2015.
History
In his 2003 Pre-Budget Report, then-Chancellor Gordon Brown announced that the O ...
from 30 June 2011 withdrew the existing ''Cheque Guarantee Card Scheme'' in the UK. This service allowed cheques to be guaranteed at
point of sales
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice ...
up to a certain value, normally £50 or £100, when signed in front of the retailer with the additional cheque guarantee card. This was after a long period of decline in their use in favour of
debit cards.
The Payments Council proposed to close the centralised cheque clearing altogether in the UK and had set a target date of 31 October 2018. However, on 12 July 2011, the Payments Council announced that after opposition from MPs, charity groups and public opinion, the cheque will remain in use and there would no longer be a reason to seek an alternative paper-initiated payment.
Since 2001, businesses in the United Kingdom have made more electronic payments than cheque payments. Automated payments rose from 753 million in 1995 to 1.1 billion in 2001 and cheques declined in that same period of time from 1.14 to 1.1 billion payments.
Most utilities in the United Kingdom charge lower prices to customers who pay by
direct debit A direct debit or direct withdrawal is a financial transaction in which one organisation withdraws funds from a payer's bank account., https://www.directdebit.co.uk/direct-debit-explained/what-is-direct-debit/ Formally, the organisation that calls f ...
than for other payment methods, including electronic methods.
The vast majority of retailers in the United Kingdom have not accepted cheques as a means of payment for several years, and cheque guarantee cards are no longer issued. For example,
Shell
Shell may refer to:
Architecture and design
* Shell (structure), a thin structure
** Concrete shell, a thin shell of concrete, usually with no interior columns or exterior buttresses
** Thin-shell structure
Science Biology
* Seashell, a hard o ...
announced in September 2005 that it would no longer accept cheques at their UK petrol stations.
This was soon followed by other major fuel retailers, such as
Texaco
Texaco, Inc. ("The Texas Company") is an American Petroleum, oil brand owned and operated by Chevron Corporation. Its flagship product is its Gasoline, fuel "Texaco with Techron". It also owned the Havoline motor oil brand. Texaco was an Indepe ...
,
BP, and
Total.
Asda
Asda Stores Ltd. () (often styled as ASDA) is a British supermarket chain. It is headquartered in Leeds, England. The company was founded in 1949 when the Asquith family merged their retail business with the Associated Dairies company of York ...
announced in April 2006 that it would stop accepting cheques, initially as a trial in the London area,
and
Boots
A boot is a type of footwear.
Boot or Boots may also refer to:
Businesses
* Boot Inn, Chester, Cheshire, England
* Boots (company), a high-street pharmacy chain and manufacturer of pharmaceuticals in the United Kingdom
* The Boot, Cromer St ...
announced in September 2006 that it would stop accepting cheques, initially as a trial in
Sussex
Sussex (), from the Old English (), is a historic county in South East England that was formerly an independent medieval Anglo-Saxon kingdom. It is bounded to the west by Hampshire, north by Surrey, northeast by Kent, south by the English ...
and
Surrey
Surrey () is a ceremonial and non-metropolitan county in South East England, bordering Greater London to the south west. Surrey has a large rural area, and several significant urban areas which form part of the Greater London Built-up Area. ...
.
Currys
Currys (branded as Currys PC World between 2010 and 2021) is an electrical retailer and aftercare service provider operating in the United Kingdom and Ireland, specialising in white goods, consumer electronics, computers and mobile phones.
E ...
(and other stores in the
DSGi group) and
WH Smith
WHSmith (also written WH Smith, and known colloquially as Smith's and formerly as W. H. Smith & Son) is a British retailer, headquartered in Swindon, England, which operates a chain of high street, railway station, airport, port, hospital and ...
also no longer accept cheques.
Cheques are now widely predicted to become a thing of the past, or at most, a niche product used to pay private individuals or for the very large number of small service providers who are not willing to provide their bank details to customers to allow electronic payments to be made to them or do not wish to be burdened with checking their bank accounts frequently and reconciling them with amounts due (for example, music teachers, driving instructors, children's sports lessons, small shops, schools).
The UK
Payments Council
The Payments Council was an organisation of financial institutions in the United Kingdom, which set strategy for UK payment mechanisms from 2007 until 2015.
History
In his 2003 Pre-Budget Report, then-Chancellor Gordon Brown announced that the O ...
announced in December 2009 that cheques would be phased out by October 2018, but only if adequate alternatives were developed. They intended to perform annual checks on the progress of other payments systems and a final review of the decision would have been held in 2016. Concerns were expressed, however, by charities and older people; who are the main users of cheques, and replacement plans were criticised as being open to fraud. It was therefore announced by the UK Payments Council in July 2011 that the cheque would not be eliminated.
432 million inter-bank cheques and credit-items worth £472,000,000,000 were processed in the United Kingdom in 2016 according to Payments UK. In 2017, 405 million cheques worth £356 billion were used for payments and acquiring cash, an average of 1.2 million cheques per day, with more than 10 million being cleared in Northern Ireland alone. The Cheque and Credit Clearing Company noted that cheques continue to be highly valued for paying tradesmen and utility bills, and play a vital role in business, clubs and societies sectors, with nine in 10 business saying that they received or made payment by cheque on a monthly basis.
In June 2014, following a successful trial in the UK by
Barclays
Barclays () is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services.
Barclays traces ...
, the UK government gave the go-ahead for a
cheque truncation
Cheque truncation (check truncation in American English) is a cheque clearance system that involves the digitization of a physical paper cheque into a substitute electronic form for transmission to the paying bank. The process of cheque cleara ...
system, allowing people to pay in a cheque by taking a photo of it, rather than physically depositing the paper cheque at a bank.
United States
In the United States, cheques are referred to as ''checks'' and are governed by Article 3 of the
Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
, under the rubric of
negotiable instruments.
* An ''order check''—the most common form in the US—is payable only to the named payee or ''endorsee'', as it usually contains the language "Pay to the order of (name)".
* A ''bearer check'' is payable to anyone who is in
possession
Possession may refer to:
Law
* Dependent territory, an area of land over which another country exercises sovereignty, but which does not have the full right of participation in that country's governance
* Drug possession, a crime
* Ownership
* ...
of the document: this would be the case if the cheque does not name a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the cheque is payable to someone who is not a person or legal entity, for example if the payee line is marked "Happy Birthday".
* A ''counter check'' is one that a bank issues to an account holder in person. This is typically done for customers who have opened a new account or have run out of personalized cheques. It may lack the usual security features.
In the US, the terminology for a cheque historically varied with the type of financial institution on which it is drawn. In the case of a
savings and loan association
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; simi ...
it was a ''negotiable order of withdrawal'' (compare
Negotiable Order of Withdrawal account In the United States, a negotiable order of withdrawal account (NOW account) is a deposit account that pays interest on which an unlimited number of checks may be written.
A negotiable order of withdrawal is essentially identical to a check drawn ...
); if a
credit union
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
it was a ''share draft.'' "Checks" were associated with chartered commercial banks. However, common usage has increasingly conformed to more recent versions of Article 3, where ''check'' means any or all of these negotiable instruments. Certain types of cheques drawn on a government agency, especially payroll cheques, may be called a ''payroll warrant''.
At the bottom of each cheque there is the routing/account number in
MICR
Magnetic ink character recognition code, known in short as MICR code, is a character recognition technology used mainly by the banking industry to streamline the processing and clearance of cheques and other documents. MICR encoding, called the ' ...
format. The
ABA routing transit number
In the United States, an ABA routing transit number (ABA RTN) is a nine-digit code printed on the bottom of checks to identify the financial institution on which it was drawn. The American Bankers Association (ABA) developed the system in 1910 ...
is a nine-digit number in which the first four digits identifies the
US Federal Reserve Bank's cheque-processing centre. This is followed by digits 5 through 8, identifying the specific bank served by that cheque-processing centre. Digit 9 is a verification
check digit
A check digit is a form of redundancy check used for error detection on identification numbers, such as bank account numbers, which are used in an application where they will at least sometimes be input manually. It is analogous to a binary parity ...
, computed using a complex algorithm of the previous eight digits.
* Typically the routing number is followed by a group of eight or nine MICR digits that indicates the particular account number at that bank. The account number is assigned independently by the various banks.
* Typically the account number is followed by a group of three or four MICR digits that indicates a particular cheque number from that account.
* Directional routing number—also known as the transit number, consists of a denominator mirroring the first four digits of the routing number, and a hyphenated numerator, also known as the ABA number, in which the first part is a city code (1–49), if the account is in one of 49 specific cities, or a state code (50–99) if it is not in one of those specific cities; the second part of the hyphenated numerator mirrors the 5th through 8th digits of the routing number with leading zeros removed.
A ''draft'' in the US
Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
is any bill of exchange, whether payable on demand or at a later date. If payable on demand it is a "
demand draft
A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee).
A de ...
", or if drawn on a financial institution, a cheque.
The electronic cheque or
substitute cheque was formally adopted in the US in 2004 with the passing of the "Check Clearing for the 21st Century Act" (or
Check 21 Act
The Check Clearing for the 21st Century Act (or Check 21 Act) is a United States federal law, , that was enacted on October 28, 2003 by the 108th U.S. Congress. The Check 21 Act took effect one year later on October 28, 2004. The law allows the ...
). This allowed the creation of electronic cheques and translation (
truncation) of paper cheques into electronic replacements, reducing cost and processing time.
The specification for US cheques is given by ANSI committee X9 Technical Report 2.
In 2002 the US still relied heavily on cheques due to the convenience afforded to payers, and due to the absence of a high volume system for low-value electronic payments.
In practice, transfers of less than about five dollars are extremely expensive, and transactions of less than 50c impossible (transaction fees swallow the payment or exceed it). The only methods generally available for individuals and small businesses to make payments electronically are electronic funds transfers (EFT) or accepting credit cards. EFT payments require a commercial chequing account (which often has higher fees and minimum balances than individual accounts) and a subscription to EFT service costing anywhere from $10 to $25 a month, plus 10¢ per transaction (making transactions of 10¢ or less impossible, and transactions under $1 very expensive.) Credit card payments cost the recipient (or the payer) 33¢ plus 3% of the transaction, making transactions of 33¢ or less impossible, and transactions of $1 or less have at least a 30% service charge. Generally, payments by cheque (as long as the payer has funds in their account) and the recipient deposits it to their bank account, regardless of amount, have a service charge to both parties of zero.
Since 2002, the decline in cheque usage seen around the world has also started in the US. The cheque, although not as common as it used to be, is still a long way from disappearing completely in the US.
In the US, an estimated 18.3 billion cheques were paid in 2012, with a value of $25.9 trillion.
About 70 billion cheques were written annually in the US by 2001,
though around 17 million adult Americans
have no bank accounts . Certain companies whom a person pays with a cheque will turn it into an
Automated Clearing House
An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. The ...
(ACH) or electronic transaction. Banks try to save time processing cheques by sending them electronically between banks. Cheque clearing is usually done through an electronic cheque broker, such as
The Clearing House
The Clearing House is a banking association and payments company owned by the largest commercial banks in the United States. The Clearing House is the parent organization of The Clearing House Payments Company L.L.C., which owns and operates core ...
, Viewpointe LLC or the Federal Reserve Banks. Copies of the cheques are stored at a bank or the broker, for periods up to 99 years, and this is why some cheque archives have grown to 20
petabyte
The byte is a unit of digital information that most commonly consists of eight bits. Historically, the byte was the number of bits used to encode a single character of text in a computer and for this reason it is the smallest addressable unit ...
s. The access to these archives is now worldwide, as most bank programming is now done offshore. Many utilities and most credit cards will also allow customers to pay by providing bank information and having the payee draw payment from the customer's account (
direct debit A direct debit or direct withdrawal is a financial transaction in which one organisation withdraws funds from a payer's bank account., https://www.directdebit.co.uk/direct-debit-explained/what-is-direct-debit/ Formally, the organisation that calls f ...
). Many people in the US pay their bills or transfer money via paper
money order
A money order is a directive to pay a pre-specified amount of money from prepaid funds, making it a more trusted method of payment than a cheque.
History
The money order system was established by a private firm in Great Britain in 1792 and was ...
s, as these have security advantages over mailing cash and require no bank-account access.
Turkey
In Turkey, cheques are usually used for commercial transactions only, and using post-dated cheques is legally permissible.
Cheque fraud
Cheques have been a tempting target for criminals to steal money or goods from the drawer, payee or the banks. A number of measures have been introduced to combat fraud over the years. These range from things like writing a cheque so it is difficult to alter after it is drawn, to mechanisms like crossing a cheque so that it can only be paid into another bank's account providing some traceability. However, the inherent security weaknesses of cheques as a payment method, such as having only the signature as the main
authentication
Authentication (from ''authentikos'', "real, genuine", from αὐθέντης ''authentes'', "author") is the act of proving an assertion, such as the identity of a computer system user. In contrast with identification, the act of indicati ...
method and not knowing if funds will be received until the clearing cycle is complete, have made them vulnerable to a number of different types of fraud.
Embezzlement
Taking advantage of the float period (
cheque kiting
Check kiting or cheque kiting (see spelling differences) is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account. In this way, instead of being used as a negotiable ...
) to delay the notice of non-existent funds. This often involves trying to convince a merchant or other recipient, hoping the recipient will not suspect that the cheque will not clear, giving time for the fraudster to disappear.
Forgery
Sometimes, forgery is the method of choice in defrauding a bank. One form of forgery involves the use of a victim's legitimate cheques, that have either been stolen and then cashed, or altering a cheque that has been legitimately written to the perpetrator, by adding words or digits to inflate the amount.
Identity theft
Since cheques include significant personal information (name, account number, signature and in some countries driver's license number, the address or phone number of the account holder), they can be used for
identity theft
Identity theft occurs when someone uses another person's personal identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes. The term ''identity theft'' was co ...
. The practice was discontinued as identity theft became widespread.
Dishonoured cheques
A dishonoured cheque cannot be redeemed for its value and is worthless; they are also known as an ''RDI'' (returned deposit item), or ''NSF'' (
non-sufficient funds
Dishonoured cheques (also spelled check) are cheques that a bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honour a cheque, with non-sufficient funds (NSF) being the most common one ...
) cheque. Cheques are usually dishonoured because the drawer's account has been frozen or limited, or because there are insufficient funds in the drawer's account when the cheque was redeemed. A cheque drawn on an account with insufficient funds is said to have ''bounced'' and may be called a ''rubber cheque''.
Banks will typically charge customers for issuing a dishonoured cheque, and in some jurisdictions such an act is a criminal action. A drawer may also issue a ''stop'' on a cheque, instructing the financial institution not to honour a particular cheque.
In
England and Wales
England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is Eng ...
, they are typically returned marked "Refer to Drawer"—an instruction to contact the person issuing the cheque for an explanation as to why the cheque was not honoured. This wording was brought in after a bank was successfully sued for
libel
Defamation is the act of communicating to a third party false statements about a person, place or thing that results in damage to its reputation. It can be spoken (slander) or written (libel). It constitutes a tort or a crime. The legal defini ...
after returning a cheque with the phrase "Insufficient Funds" after making an error—the court ruled that as there were sufficient funds the statement was demonstrably false and damaging to the reputation of the person issuing the cheque. Despite the use of this revised phrase, successful libel lawsuits brought against banks by individuals remained for similar errors.
In Scotland, a cheque acts as an assignment of the amount of money to the payee. As such, if a cheque is dishonoured in Scotland, what funds are present in the bank account are "attached" and frozen, until either sufficient funds are credited to the account to pay the cheque, the drawer recovers the cheque and hands it into the bank, or the drawer obtains a letter from the payee stating that they have no further interest in the cheque.
A cheque may also be dishonoured because it is stale or not cashed within a "void after date". Many cheques have an explicit notice printed on the cheque that it is void after some period of days. In the US, banks are not required by the
Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
to honour a , which is a cheque presented six months after it is dated.
Consumer reporting
In the United States some consumer reporting agencies such as
ChexSystems
ChexSystems is a check verification service and consumer reporting agency owned by the eFunds subsidiary of Fidelity National Information Services. It provides information about the use of deposit accounts by consumers.
History
In 1991, the age ...
, Early Warning Services, and
TeleCheck have been providing
cheque verification services that track how people manage their chequing accounts. Banks use the agencies to screen chequing account applicants, and those with low debit scores are denied because banks cannot afford overdrawn accounts.
In the United Kingdom, in common with other items such as
Direct Debit A direct debit or direct withdrawal is a financial transaction in which one organisation withdraws funds from a payer's bank account., https://www.directdebit.co.uk/direct-debit-explained/what-is-direct-debit/ Formally, the organisation that calls f ...
s or
standing orders, dishonoured cheques can be reported on a customer's credit file, although not individually and this does not happen universally amongst banks. Dishonoured payments from current accounts can be marked in the same manner as missed payments on the customer's credit report.
Lock box
Typically when customers pay bills with cheques (like gas or water bills), the mail will go to a "
lock box" at the post office. There a bank will pick up all the mail, sort it, open it, take the cheques and
remittance advice
Remittance advice is a letter sent by a customer to a supplier to inform the supplier that their invoice has been paid. If the customer is paying by cheque, the remittance advice often accompanies the cheque. The advice may consist of a literal ...
out, process it all through electronic machinery, and post the funds to the proper accounts. In modern systems, taking advantage of the
Check 21 Act
The Check Clearing for the 21st Century Act (or Check 21 Act) is a United States federal law, , that was enacted on October 28, 2003 by the 108th U.S. Congress. The Check 21 Act took effect one year later on October 28, 2004. The law allows the ...
, as in the United States many cheques are transformed into electronic objects and the paper is destroyed.
See also
*
Allonge
An allonge (from French ''allonger'', "to draw out") is a slip of paper affixed to a negotiable instrument, as a bill of exchange, for the purpose of receiving additional endorsements for which there may not be sufficient space on the bill itself ...
– slip of paper attached to a cheque used to endorse it when there is not enough space.
*
Blank cheque
A blank cheque in the literal sense is a cheque that has no monetary value written in, but is already signed. In the figurative sense, it is used to describe a situation in which an agreement has been made that is open-ended or vague, and therefo ...
– cheque where amount has been left blank.
*
Certified cheque
A certified check (or certified cheque) is a form of check for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. Those funds are then set aside in the bank's ...
– guaranteed by a bank.
*
E-cheque
Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of ...
– electronic fund transfer.
*
Hundi
A hundi or hundee is a financial instrument that developed in Medieval India for use in trade and credit transactions. Hundis are used as a form of Remittances to India, remittance instrument to money order, transfer money from place to place, as ...
– historic Indian cheque like instrument.
*
Labour cheque
Labour vouchers (also known as labour cheques, labour notes, labour certificates and personal credit) are a device proposed to govern demand for goods in some models of socialism and to replace some of the tasks performed by currency under capi ...
– political concept to distribute goods in exchange for work.
*
Negotiable cow – urban legend where a cow was used as a cheque.
*
Substitute cheque – the act of scanning paper cheques and turning them into electronic payments.
*
Transit check – a cheque which is drawn on another bank than that at which it is presented for payment.
*
Traveler's cheque
A traveller's cheque is a medium of exchange that can be used in place of hard currency. They can be denominated in one of a number of major world currencies and are preprinted, fixed-amount cheques designed to allow the person signing it to ma ...
– a pre-paid cheque that could be used to make payments in stores.
*
Railway pay cheque
Railway pay cheques were metallic tokens or tallies used to ensure appropriate payment to the correctly identified railway employee.
Usage
The one-sided identification cheques were usually drawn from the wages office on a Thursday, prior to the F ...
– identification used to collect railway workers pay packet.
*
Warrant of payment
Warrant may refer to:
* Warrant (law), a form of specific authorization
** Arrest warrant, authorizing the arrest and detention of an individual
** Search warrant, a court order issued that authorizes law enforcement to conduct a search for evide ...
Notes
References
External links
* Read also abou
cancelled cheque
{{Use Oxford spelling, date=October 2016
Accounting source documents
Banking terms
Banking
Numismatics
Paper products