A cheque is generally known as an "Open cheque" when it is not crossed whether it is made payable to bearer or order.
Cheque in its printed form comes in the following manner:
Pay. Or Bearer
Hence, it is up to the drawer to specify whether he wants to make the cheque payable to order or bearer.
What is a Bearer Cheque?
A bearer cheque is one that does not has the word "Bearer" on the cheque cancelled.
The cheque sometimes can be made payable to "Cash" or bearer or made payable to a specific name, for example, "Ahmad Osman or Bearer".
This cheque is payable by the drawee bank over the counter to the Bearer or presenter of the cheque.
A Bearer cheque can be negotiated or pass to another person by mere delivery. In other words, the holder (or the Transferer), when giving it to another person need not endorse the cheque.
No identification is needed when a bearer cheque is presented for encashment. However, in normal banking practice, where the amount of the cheque is substantial, the identity of the encasher is insisted on.
A bearer cheque can be collected by the bank for the credit of anyone's accoun.
In banking practice, the need for the encasher's signature on the back of the cheque is merely to evidence that the encasher has received the money from the bank.
What is an Order Cheque?
This is a cheque whereby the printed word "Bearer" on the cheque is cancelled. The cancellation of the word "Bearer" automatically makes the cheque an "order" cheque.
An order cheque can be paid to the named payee across the bank's account if so presented.
Identification must be insisted on by the bank when encashing the order cheque for the presenter. The ID number and the named payee's signature will be asked for on the back of the cheque.
A cheque drawn thus:
Pay Cash. or Order (the bearer is cancelled) is not a cheque at all. Hence, it must not be encashed or paid. The Act states that if a cheque is to be made payable to order, the payee must be specified with certainty.
An order cheque can be negotiated to another person by the endorsement of the transferer. The mere signature of the transferer will be sufficient to transfer or negotiate the cheque.
Banks will collect cheques made payable to order if deposited for collection by any person other than the named payee.
An order cheque can be a bearer cheque if the words or bearer are not cancelled out.
Sometimes, the cheque may be issued to pay "Cash". This is called a cash cheque.
In general, issuing of cash cheques is not encouraged as they are exposed to risk of fraud. Some banks may charge a fee for encashment of third party cheques.