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Cheque

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Example of a Canadian cheque. Example of a U.S. dollar cheque issued by a Canadian bank. If the bank account was in CAD, USD would have to be added to the cheque to make it be valued in USD. Sample for a fictional cheque in the United Kingdom. The cheque is crossed (with ACCOUNT PAYEE written vertically in the middle of the cheque), which means that it can only be paid into a bank account, not to cash. Cheques issued in other Commonwealth countries are similar. Example of a South Korean cheque, where the payee and signature are on the reverse side A cheque drawn on the Regent Street (Clifton), Bristol branch of Westminster Bank, England dated 14 August 1956. Notice (a) the bank clerk's red mark verifying the signature, (b) the two-pence stamp duty, (c) this is a "Crossed cheque" disallowing transfer of payment to another account, (d) holes punched by hand through the cheque by the bank, and (e) there are no magnetic-ink characters for computer sorting — banks did not have computers in 1956 and had staff sort millions of cheques daily by hand.

A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the Maker, usually has a chequing account (a "demand account") where their money is deposited. The maker writes the amount, date, and a payee on the cheque, and signs it, ordering their bank to pay this person or company the amount of money.

Originally, there was no bank involved, and the payee had to track down the maker, in person, in order to get paid. The purpose of the bank was to increase the credibility of the cheque; then, the payee need only find the bank it was drawn on. Modern banks are linked electronically so that any cheque is good at any bank, at least in the same country.

Paper money evolved from cheques, being a written order to pay the given amount to whoever had it in their possession (the "bearer").

Technically, a cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.

Etymology and spelling

The most common spellings of the word (in all its senses) were check, checque, and cheque from the 1600s until the 1900s. Since the 1800s, the spelling cheque (from the French word chèque) is standard for the financial sense of the word in the Commonwealth and Ireland, while only check is retained in its other senses, thus distinguishing the two definitions in writing.

In American English, the usual spelling of the word is "check".

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. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (e.g. gold) to purchase goods and services. A draft is a bill of exchange which is not payable on demand of the payee. (However, draft in the U.S. Uniform Commercial Code today means any bill of exchange, whether payable on demand or at a later date; if payable on demand it is a "demand draft", or if drawn on a financial institution, a cheque.)

The ancient Romans are believed to have used an early form of cheque known as praescriptiones in the first century BC. During the 3rd century AD, banks in Persia and other territories in the Persian Empire under the Sassanid Empire issued letters of credit known as Ṣakks.

Muslims are known to have used the cheque or ṣakk system since the times of Harun al-Rashid (9th century). In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire. Indeed, fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent.

Between 1118 and 1307, it is believed the Knights Templar introduced a cheque system for pilgrims travelling to the Holy Land or across Europe. The pilgrims would deposit funds at one chapter house, then withdraw it from another chapter at their destination by showing a draft of their claim. These drafts would be written in a very complicated code only the Templars could decipher.

The Geneva Convention of 1931

The Geneva Convention on the unification of the law relating to cheques simplified the international use of cheques . Most European and South American states and Japan joined the convention, but not the United States and the members of Commonwealth (all the members of the common law).

Parts of a cheque

The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.

Cheques generally contain:

1. place of issue
2. cheque number
3. date of issue
4. payee
5. amount of currency
6. signature of the drawer
7. routing / account number in MICR format. In the U.S., the routing transit number is a nine-digit number in which the first 4 digits identifies the U.S. Federal Reserve Bank's cheque-processing center. This is followed by digits 5 through 8, identifying the specific bank served by that cheque-processing center. Digit 9 is a verification check digit, computed using a complex algorithm of the previous 8 digits.
   • Typically the routing number is followed by a group 8 or 9 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 3 or 4 MICR digits that indicates a particular cheque number from that account.
8. fractional routing number (U.S. only) - also known as the transit number, consists of a denominator mirroring the first 4 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 cheque is generally valid indefinitely or for six months after the date of issue unless otherwise indicated; this varies depending on where the cheque is drawn. In Australia, for example, it is fifteen months. In the United States and Canada, it is six months.Legal amount (amount in words) is also highly recommended but not strictly required.

In the USA and some other countries, cheques contain a memo line where the purpose of the cheque can be indicated as a convenience without affecting the official parts of the cheque. This is not used in Britain where such notes are often written on the reverse side.

In the USA, 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".

Types of cheques

North America

United States

In the United States, cheques (spelled "checks") are governed by Article 3 of the Uniform Commercial Code.

• An order check — the most common form in the United States — is payable only to the named payee or his or her endorsee, as it usually contains the language "Pay to the order of (name)."
• A bearer check is payable to anyone who is in possession of the document: this would be the case if the cheque does not state 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, e.g. if the payee line is marked "Happy Birthday".
• A counter check is a bank cheque given to customers who have run out of cheques or whose cheques are not yet available. It is often left blank, and is used for purposes of withdrawal.

In the United States, 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 it was a negotiable order of withdrawal; if a credit union it was a share draft. Checks as such 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 also be referred to as a payroll warrant.

Canada

In Canada there are similar cheque types to the US but there are many noticeable and subtle changes in the way cheques are processed that one must be aware of

• It is possible to write cheques in currencies (using the standardized ISO currency names) that are not in Canadian Dollars.
• Canadian cheques can legally be written in English or French or Arctic languages.
• In Canada, cheque sizes and types -- as well as endorsements requirements and MICR tolerances are overseen by the Canadian Payments Association (CPA).
• A tele-cheque (in the US banking system it has another name) 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 January 27, 2004. This kind of cheque is still acceptable in the US banking system.

Australia, New Zealand & Pacific Islands

Australia

Overview

• There are about 50 million cheques written each month. The value of daily cheque transactions has been cut by more than four-fifths from $25 billion in 1994 to only $5 billion in 2004. As a proportion of all transactions, cheques are falling.
• Since 1999, banks have adopted a system to allow faster clearance of cheques.
• By electronically transmitting some information about a cheque, the normal clearance time was brought down by at least two working days.
• Before April 1999, processing had generally required five working days before a customer had access to cleared funds from a cheque.
• Until the early 2000s a cheque had to be physically transported to the paying bank before processing began. If it was dishonoured, it was physically returned.
• Cheque particulars are now transmitted electronically so that processing can start before the cheque arrives at the paying bank. This speeds up the clearance process, giving customers faster access to their money. So, if customers deposit a cheque on Monday, funds will normally be available on Thursday at the latest, instead of the following Monday.

The Cheques Act 1986 is the body of law governing the issuance of cheques and payment orders in Australia. All licensed banks in Australia may issue cheques in their own name. Non-banks are not permitted (under the Cheques Act 1986) to issue cheques in their own name but may issue, and have drawn on them, payment orders (which functionally are no different from cheques).

Australian Payments Clearing Association Limited (APCA) manages the regulatory and procedural framework governing the conduct of clearing (the cross-institutional exchange of payment messages) and settlement of the resulting obligations.

In practice, however, most non-bank financial institutions which wish to provide their customers with a ‘cheque’ facility, issue cheques which carry their name but which are drawn on a bank under a cheque issuance facility. The Cheques Act does not detail the procedural and practical issues governing the clearance of cheques and payment orders. These are specifically covered by APCA’s rules.

Austraclear is an unlisted public company. Its members are the major participants in the money market: banks, government and semigovernment bodies, insurance and superannuation companies, trustee companies, non-bank financial institutions and larger corporations. Austraclear provides a central depository and registry for money market securities (private sector and semi-government securities) and an electronic system for transferring ownership of securities at the end of day without the need for the physical transfer of paper.

New Zealand

There are few specific legislative or regulatory requirements governing payment systems in New Zealand. Payment systems must be operated within the general law including compliance by payments providers with anti-competitive requirements. General commercial and consumer law and the contractual conditions agreed between the participants in the separate systems govern the day-to-day operations of payment instruments and systems. The New Zealand Bankers’ Association establishes industry standards and policies in some instances, but the payment services entities have their own governance arrangements, business strategies and rules.

Instrument-specific legislation includes the Cheques Act 1960, 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 and imaging.

The Cheques Act is part of the Bills of Exchange Act 1908, the latter being the principal Act dealing with negotiable instruments. The Act sets out the rules governing bills of exchange, including some provisions relating specifically to cheques, and promissory notes.

The Reserve Bank of New Zealand provides the central Exchange Settlement Account System (ESAS) and a high value payment and securities settlement system, the Austraclear New Zealand system (Austraclear).

The registered banks provide the current retail payment services and a wholesale payment facility. Banks are registered and supervised by the Reserve Bank. There are currently 17 registered banks, of which all but two are wholly overseas owned.

Traditionally, cheques have been the major non-cash payment instrument in New Zealand, heavily used by both business and consumers. They are used for face-to-face and remote transactions and for any size of payment. In the case of face-to-face transactions by individuals, some form of identification of the payer is frequently required.

Once banked, cheques are processed electronically together with other retail payment instruments, such as direct debits and credits and telephone banking transactions. In the past, the physical paper was exchanged and it could take up to five business days for a cheque to be cleared. The introduction of cheque truncation and imaging in 1995 has removed the need for the physical movement of cheques and reduced the total cheque clearance time, as well as eliminating the costs of physically moving the cheque.

Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying bank’s branch, instead of the cumbersome physical presentment.

Payment statistics indicate a strong move away from cheques in favour of electronic payment methods. From being the most popular form of non-cash payment until the mid-1990s, cheques now lag behind EFTPOS payment transactions and electronic credits and their usage is declining at about 6% per year. Payments by cheque accounted for over 50% of transactions through the banking system in 1993 and averaged 130 cheques per capita.

By the end of 2006, the per capita annual figure had reduced significantly to 41 cheques, and accounted for 9% of non-cash payments.

Europe

All European banks from Iceland to the Russian Far East — regardless of whether the nation uses cheques or not — hold to a standard European convention on cheque designs and processing system specifications.

United Kingdom

In the UK all cheques must now conform to "C&CCC Standard 3", the industry standard detailing layout and font, 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.

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.

Usage

Cheques may be valid regardless of denomination and are used within numerous scenarios in place of cash.

Parties to regular cheques generally include a maker or 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 maker issues the cheque. The drawer drafts or draws a cheque, which is also called cutting a check, especially in the United States. 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 bounced. 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 are losing favour, as they 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.

Following a report by a working group of the Office of Fair Trading in 2006 maximum times for the cheque clearing cycle for most banks will be introduced in UK from November 2007. The date the credit appears on the recipient's account (usually the day of deposit) will be designated 'T'. At 'T + 2' (2 business days afterwards) the value will count for calculation of credit interest or overdraft interest on the recipient's account. At 'T + 4' one will be able to withdraw funds (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, the only way to know the 'fate' of a cheque has been 'Special Presentation', which would probably involve a fee, where the drawee bank contacts the payee bank to see if the payee has that money at that time. 'Special Presentation' needs to be stated at the time of depositing in the cheque.

When a maker directs the maker's bank to deduct the funds for the amount of a cheque from the maker's account, thus guaranteeing funds will be available for the cheque to clear, and the bank indicates this fact by making a notation on the face of the cheque (technically called an acceptance), the instrument is then referred to as a certified cheque.

In Europe, in the few countries where cheques are still being used, and in the past also in other European countries, a drawer can present a cheque guarantee card with the cheque when paying a retailer. If the retailer wrote the card number on the back of the cheque, the cheque was signed in the retailer's presence, and the retailer verifies the signature on the cheque against the signature on the card, then the cheque cannot be cancelled and payment cannot be refused. Cheque guarantee cards have been out of use in Central Europe for about 15 years.

A cheque used to pay wages due is referred to as a payroll cheque. 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.

A traveller's cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the account holder for that privilege. Traveller's cheques can usually be replaced if lost or stolen; they are often used by people on vacation instead of cash. The use of credit or debit cards has, however, begun to replace the traveller's cheque as the standard for vacation money, with an increase in usage by spenders due to ease of use, and an increase of businesses preferring transfers of this kind over traveller's cheques. This has resulted in some businesses to no longer accepting traveller's cheques as currency.

• A cheque sold by a post office or merchant such as a grocery for payment by a third party for a customer is referred to as a money order or postal order.
• A cheque issued by a bank on its own account for a customer for payment to a third party is called a cashier's cheque, a treasurer's cheque, a bank cheque, or a bank draft. A cheque issued by a bank but drawn on an account with another bank is a teller's cheque.
• In addition to issuing cashier's and teller's cheques, banks often sell money orders, and traveller's cheques are usually purchased from banks.
• Some public assistance programs such as the Special Supplemental Nutrition Program for Women, Infants and Children, or Aid to Families with Dependent Children 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.
• Paper cheques have a major advantage to the maker over debit card transactions in that the maker's bank will release the money several days later. Paying with a cheque and making a deposit before it clears the maker's bank is called "kiting" or "floating" and is generally illegal in the United States, but rarely enforced unless the maker uses multiple chequing accounts with multiple institutions to increase the delay or to steal the funds.

Industry trend

Cheques have been in decline for many years, both for point of sale transactions (for which credit cards and debit cards are increasingly preferred) and for third party payments (e.g. bill payments), where the decline has been accelerated by the emergence of telephone banking and online banking. 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. Cheques are also more costly for the issuer and receiver of a cheque. In particular the handling of money transfer requires more effort and is time consuming. The cheque has to be handed over on a personal meeting or has to be sent by mail. The rise of automated teller machines (ATMs) has led to an era of easy access to cash, which make the necessity of writing a cheque to someone because the banks were closed a thing of the past.

Western Europe

In most European countries, cheques are now very rarely used, even for third party payments. In these countries, it is a standard practice for businesses to publish their bank details on invoices, in order 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. One of the essential procedural differences is that with a cheque, the onus is on the payee to initiate the payment in the banking system, whereas with a giro transfer, the onus is on the payer to effect the payment. 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, the Netherlands, Belgium, and Scandinavia, cheques have almost completely vanished in favour of direct bank transfers and electronic payments. Direct bank transfers, using so-called giro transfers, have been standard procedure since the 1950s to send and receive regular payments like rent and wages and even mail-order invoices. In the Netherlands, Austria, and Germany, all kinds of invoices are commonly accompanied by so-called acceptgiro's (Netherlands) or Überweisungen (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. Due to this, credit cards are rather uncommon in Germany and Austria, and are mostly used for the credit function rather than for cashless payment. However, debit cards are widespread in these countries, since virtually all Austrian and German banks issue debit cards instead of simple ATM cards for use on current accounts. Acceptance of cheques has been further diminished since the late 1990s, because of the abolition of the Eurocheque. 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 have used an interconnected international giro system since the 1950s, and in Sweden, cheques are now totally abandoned. Electronic payments across the European Union are now fast and inexpensive.

In the United Kingdom, Ireland, and France, there is still a heavy reliance on cheques by some sectors of the population, partly because cheques remain free of charge to personal customers; however, bank-to-bank transfers are increasing in popularity. Since 2001, businesses in the United Kingdom have made more electronic payments than cheque payments. In a bid to discourage cheques, most utilities in the United Kingdom charge higher prices to customers who choose to pay by a means other than direct debit, even if the customer pays by another electronic method. Some shops in the United Kingdom and many in France no longer accept cheques as a means of payment. An example of this is when Shell announced in September 2005 that it would no longer accept cheques in its UK petrol stations. More recently, this has been followed by other major fuel retailers, such as Texaco, BP, and Total. Asda announced in April 2006 that it would stop accepting cheques, initially as a trial in the London area, and Boots announced in September 2006 that it would stop accepting cheques, initially as a trial in Sussex and Surrey. Currys (and other stores in the DSGi group) and WH Smith 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 those businesses that do not, or cannot easily, accept electronic payments (e.g. music teachers, driving instructors, children's sports lessons, very small shops, schools etc.). In fact, the UK Payments Council announced in December 2009 that cheques would be phased out by October 2018, but only if adequate alternatives are developed. They will perform annual checks on the progress of other payments systems and a final review of the decision will be held in 2016.

North America

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The United States still relies heavily on checks, caused by the absence of a high volume system for low value electronic payments. About 70 billion checks were written annually in the U.S. by 2001, though almost 25% of Americans do not have bank accounts at all. When sending a payment by online banking in the U.S. at some banks, the sending bank mails a cheque to the payee's bank or to the payee rather than sending the funds electronically. Certain companies with whom a person pays with a check will turn that check into an Automated Clearing House (ACH) or electronic transaction. Banks try to save time processing checks by sending them electronically between banks. 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). Many people in the U.S. still use paper money orders to pay bills or transfer money, since they act like checks in payment processing systems, have security advantages over mailing cash, and do not require access to a bank account in order to obtain.

Canada's usage of checks is slightly less than that of the U.S. The Interac system, which allows instant fund transfers via magnetic strip and PIN, is widely used by merchants to the point that very few brick and mortar merchants accept checks anymore. 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 (EMT) service.

Checks are still widely used for government checks, payroll, rent, and utility bill payments, though direct deposits and online/telephone bill payments are also widely offered.

Alternatives to cheques

1. Wire transfer (local and international)
2. Direct debit (initiated by payee)
3. Direct credit (initiated by payer), ACH in the USA
4. Online card payment
5. Third party online payment services (for example PayPal)
6. Postal payments (different names in different countries)
7. Cash (at the counter)
8. POS payments (at the counter)

Fraud (identity theft) via cheques

Since cheques include significant personal information (name, account number, signature and in some countries driver's license number, the address and/or phone number of the account holder), they can be used for fraud, specifically identity theft.

Oversized cheques

Oversized cheques are often used in public events such as donating money to charity or giving out prizes such as Publishers Clearing House. The cheques are commonly 18 by 36 inches (46 cm × 91 cm) in size, however, according to the Guinness Book of World Records, the largest ever is 12 by 25 metres (39 ft × 82 ft). Regardless of the size, such cheques can still be redeemed for their cash value as long as they have the same parts as a normal cheque, although usually the oversized cheque is kept as a souvenir and a normal cheque is provided. A bank may levy additional charges for clearing an oversized cheque.

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) 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, 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 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.

However, 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 that he has no further interest in the cheque.

A cheque may also be dishonored 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 United States, banks are not required by the Uniform Commercial Code to honor a stale dated-cheque, which is a cheque presented six months after it is dated.

Cashier's cheques & banker's drafts

Cashier's cheques and banker's drafts are cheques issued against the funds of a financial institution rather than an individual account holder, decreasing the likelihood the cheque will bounce. Typically, cashier's cheques are used in the USA and banker's drafts are used in the UK. Though similar, they differ in their mechanics.

Cashier's cheques are issued by a bank cashier or head teller (or even by a major company). They are paid from the financial institution's funds immediately, without any clearing period. The financial institution then later takes the value of the cheque from the drawer. Cashier's cheques are perceived to be as good as cash but they are still a cheque, a misconception often exploited by scam artists.

The funds behind a banker's draft are paid when the draft is first drawn and are held by the issuing bank until the draft is cashed. Thus the funds of a banker's draft has been allocated and verified before the document is issued, providing a guarantee it will not be dishonoured due to insufficient funds. However, a lost or stolen banker's draft can be stopped like any other cheque so payment is not completely guaranteed.

Certified cheque

When a certified cheque is drawn, the bank operating the account verifies there are currently sufficient funds in the drawer's account to honour the cheque. A hole is punched through the MICR numbers so the certified cheque will not be processed as an ordinary cheque when it is deposited, and a bank official signs the cheque face to indicate it is certified. Although the face of the cheque is crowded, the back of the cheque is blank and the cheque can be deposited and routed through the banking system like an ordinary cheque.

While certified cheques guarantee there are sufficient funds to honour them at the time the cheque is drawn, they cannot guarantee there will be sufficient funds when the cheque is finally cleared for payment.

Warrants

Warrants look like cheques and clear through the banking system like cheques, but are not drawn against cleared funds in a demand deposit account. A cheque differs from a warrant in that the warrant is not necessarily payable on demand and may not be negotiable.

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 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, as in the U.S., many cheques are transformed into electronic objects and the paper is destroyed.

See also

• Allonge
• Blank cheque
• E-check
• Labour cheque
• Negotiable cow
• Substitute check

Notes

References

External links

Wikimedia Commons has media related to: cheques

• Bank and account identifiers on U.S. cheques: ABA / Routing / Transit
• Cheque and Credit Clearing Company - the organisation that manages the cheque clearing system in the UK
• Cheques found in the Cairo Geniza from the 12th century
• Information on cheques in the UK from APACS
• Malaysia Introduces New Cheque Clearing System
• Bills of Exchange Act 1882
• Cheques Act 1957
• Cheques Act 1992