We normally use cheque as money transfer tool for daily transactions. But have you ever wonder why cheque clearing takes much time? I do not know! so, I want to know what is there in background that help cheque to be cleared? What are the different steps/stages by which a A/C payee is cheque cleared? And what are the other type of cheques which are not A/C payee?
Author: Sagar Sharma 04 Dec 2012 Member Level: Bronze Points. 4 ( Rs 3) Voting Score: 0
The clearing cycle of cheque(s) takes 1 or 2 days. So, let me tell you that how this gonna happen with this simple example,suppose that you have an account in Punjab National Bank (PNB)and you have a cheque drawn on HDFC Bank. You presented the following cheque in your bank for crediting the amount in your account. The bank presents it for clearing, which means that it takes to the clearing house either the same day or the next day. All banks in the clearing area including HDFC Bank will be there. So, HDFC Bank takes your cheque and they will go to their branch, verify whether the cheque is in order and whether the funds are available in the account and then they give credit to your bank who in turn passes on the credit to you.
TYPES OF CHEQUES :
There are two types of cheques, (i) Open Cheques and (ii) Crossed Cheques.
(i) Open Cheques :- It refers to those cheques which are paid across the counter of the bank. There are two types of open cheques first is bearer cheques, which refers to those cheques in which drawer orders the bank to pay a stated sum of money to the bearer and second is Order Cheques, which is to the order of a person in whose favor the cheque is drawn.
(ii) Crossed Cheques :- It refers to a cheque which is crossed by drawing two parallel lines across the face of the cheque, with or without the words & Co or A/c payee only.
There are two types of crossing :- (a) General crossing and (b) Special crossing.
Author: Manoj Chaurasia 06 Dec 2012 Member Level: Gold Points. 12 ( Rs 10) Voting Score: 0
Cheque payment or cheque settlement as is popularly known goes through the following process, which can be explained with and example:
1. Mr. 'X' writes a cheque of Rs.10000 in favor of Mr.'Y' dated 07/12/12 for some legal advice obtained by him from Mr.'Y.
2. Mr.'Y' deposits this cheque on the same day with his bank, i.e. 07/12/12.
3. Bank sends the cheque to clearing house next day i.e. 08/012/12.
4. Clearing house asks for confirmation form the bank of Mr.'X' about the cheque issued and also about the balance confirmation or availability of fund. This process may take 1 complete day as there are lots of confirmations to be obtained.
5. On 09/12/12, the clearing house gets the confirmation about the same and flags a message to bank of Mr.'Y' that the cheque has been cleared for payment or in legal term cheque has been 'honoured'.
6. Now on 09/12/12 or maximum on 10/12/12, receipt or credit will be reflected in the account of Mr.'Y' and a payment or debit in account of Mr.'X'
This process took 3 to 4 days as this being a local cheque, meaning both the parties were in same city.
In case the cheque was from another city or otherwise called the 'outstation cheque' then this process would have taken around 7 to 8 days. You may have read this message many times on bank ATMs.
Now coming to types of cheque. Primarily there are only two types of cheque which can be further sub divided into some categories but that does not require and explanation here as the primary classification is more than enough to understand them. They are:
1. Bearer cheque
2. Crossed cheque
Bearer cheque is commonly referred as cash
because it can be encashed by anyone who has the cheque in his hand by presenting it over the bank cash counter. For the same reason they are considered risky. If they are lost by person in whose name it was issued and is found by any unknown person then it can be encashed by person who finds it. Usually bank does not ask for the identity of the person who holds the bearer cheque.
Bearer cheques are usually for withdrawing money by the holder of account but at times they also issue cheque to some other person if that person does not have an account or is in urgent need of money.
The process of giving a bearer cheque is that the person issuing the cheque should get one signature of person in whose name it issued on the cheque in his presence and when that person goes to bank the cashier or bank clerk asks for another signature of that person.
But this process is rarely followed. Issuer gives the bearer cheque to any one who needs money and that person signs the cheque twice immediately or when he reaches the bank counter. I have also done this many times. But this is risky and in case by mistake cheque is lost then it can be withdrawn by anyone who finds it.
Now 'crossed cheque' also called 'account payee cheque' is the most common way of payment and is also considered the safest as direct cash transfer does not take place. Transfer is from one bank to another, so there is least risk of any fraud. Also this keeps a trail of the money transferred.
A crossed cheque is usually crossed at the top left corned with two parallel lines drawn. Though there is no need to mention 'account payee only', but people do so. Even bank officers do so.
Crossing of cheque are also of different types but I am not explaining them here, but providing you with a link at the reference url.
Last but not the least cheques are covered under Negotiable Instruments Act, 1881, which can be referred for detailed study and its legal implication and penalties and so on.
How are cheques getting cleared?
Clearing of cheques takes 2-3 days time. International cheques may take 3-4 working days time. When Mr. X draws a cheque(Account payee) on Mr. Y (Both X and Y have accounts in two different banks), Mr. Y will present the cheque to his bank for clearance. The bank will accept the cheque and will present the same at clearing house. The clearing house will then ask X's bank to check on the genuinety of X's account and to check whether there is sufficient funds in X's account. Then the clearing house will give permission to Y's bank to clear the cheque. Y's bank will clear the cheque. On doing so the said amount as per the cheque will be credited to Y's account and will be deducted from X's account.
Types of Cheques :
Open Cheques : These chques are paid over the counter and is not credited to anyone's account.
Bearer cheques: It is a type of Open cheque. The holder of the cheque has the right to get the cheque cleared. Cash cheque is an example. It can be encashed by the holder of the cheque itself.
Order cheques: It is a type of Open cheque. It is an order to pay the cheque to the person whose name is mentioned on the cheque.
Crossed Cheques : The cheque will be crossed by drawing two parallel lines on the left most corner of the cheque leafwith or without the words "Account Payee" or "Not Negotiable".
Mutilated Cheques : Cheques that are damaged or torn.
Stale Cheques : Cheques are valid only for 6 months from the date of its issue. Any cheques which is not presented for clearance before the completion of 6 months is called a stale cheque and will not be accepted by any bank.