Account Payee Cheque: How to Issue and Encash?

Most of us have a bank account with the cheque book facility. But, Nowadays we rarely use a cheque. Hence, often, we are not aware of the terms like Bearer cheque, Crossed cheque, Account Payee cheque and so on. But we must know these terms as sometimes cheques become a necessity.

Did you ever realize why we issue the cheque with Account Payee instruction? What is the reason behind it? In this article, I will tell you all about Account Payee Cheque and other cheque related terms.

Common Terms of Cheque Payment

Drawer:- The person who writes and signs the cheque. He gives direction to the bank to pay a certain amount to a specified person.

Payee:- The person who will receive a certain amount from the bank. So, if you write and present the cheque before the bank for payment, you will be Drawer and Payee both.

Drawee:- Who receives the instructions for payment from the drawer. Of course, this is the bank. The bank acts as the intermediary between drawer and Payee.

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Why account Payee Cheque is Issued

Although, we can issue a normal cheque for payment instruction. Then why we issue a cheque with Account Payee instruction.

The main reason behind it to keep the cheque payment secure. The Account payee cheque ensures that-

• The payee would not be able to withdraw cash from the counter.
• The money would go to the bank account of the Payee.

The above provisions make the cheque more secure from misuse.

The Negotiable Instruments Act, 1881 defines how we can convert the normal cheque into a secured cheque. There are so many different ways to make it safe from fraud. Account Payee cheque is one of them.

How Do You Issue Account Payee Cheque

When you want to issue an Account Payee Cheque, first write the cheque. Then draw two parallel crossing lines at the top of the left corner of the cheque. We can say this procedure as crossing the cheque.

In addition to, write ‘A/C Payee Only’ between these two lines. Without these words, the cheque will not be considered as account payee.

It makes the normal cheque as Crossed Account Payee cheque. Then the bank will pay only that person whose name would be written on the cheque leaf.

How To Deposit or Encash A/C Payee Cheque

If you receive an account payee cheque, remember you can’t cash it through the counter. You have to deposit it in your bank account with the cheque deposit slip.

For this, firstly, you have to fill all details in the cheque deposit slip. Attach it with the cheque, then give it to the customer representative or drop in the cheque drop box. After a few days, you will receive the amount of cheque directly in your account. That is the way of Account Payee Cheque encashment.

Note, you should also write the bank account number and mobile number at the back of cheque leaf. It ensured that your money gets credited in the right account even if the deposit slip detaches.

Clearing of A/C Payee Cheque

When you deposit the Account Payee Cheque in your bank and you get the amount in your account. It takes a process between these two. We can say it Clearing Process of Cheque. This procedure is as follows-

1. Payee deposit the cheque in the bank.
2. Payee’s bank will process the cheque and send a request to the drawer’s bank for payment. The scanned image of the cheque is also sent to the drawer’s bank.
3. Drawer’s bank will check the signature and process the payment. The money is paid if the drawer has a fund in his account.
4. Now, payee’s bank will process the payment and credit it in his account.

Before 2010, there was only a physical clearing procedure for cheques. The non CTS 2010 cheques cleared through the Clearing House. When the Payee’s bank sent the physical cheques to Clearing House and Clearing House forwarded it to the Drawer’s Bank.

But after 2010 for the CTS cheques clearance happens electronically i.e. online. For this, payee’s bank sends the data and image only of the cheque to the Clearing House. Not the original cheque.

However, if Payee’s account and Drawer’s account are in the same branch and in the same city. Bank itself manages the process of clearance. Hence, no requirement of Clearing House.

But, if the city is the same and the bank is different, then there is a requirement of Clearing House. So, the clearance will take time according to the conditions.

Account Payee Cheque Vs Crossed Cheque

Though, Account Payee Cheque is a type of Crossed cheque. However, there is a big difference between them. A cheque having two parallel crossed lines only at the top of the left side of it, it is a Crossed Cheque.

But, when we write the words ‘A/C Payee Only’ between those two parallel lines, it is Account Payee Cheque.

The words ‘A/C Payee Only’ make the cheque more secure than cheque with mere Crossed lines.

Because the holder of Crossed Cheque has two options. Either he can deposit it or can endorse it to any other person by writing the appropriate instructions at the back of the cheque.

Moreover, the new holder can also deposit or endorse it to another person and so on. No matters, the name of the first holder is written on the cheque.

But, you can’t endorse the Account Payee Cheque. Only that person would get the payment whose name is written on the cheque. That’s why we write the words A/C Payee Only on the cheque so that any other person can’t not encash it. However, you can not encash both the cheques through the counter.

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Account Payee Cheque Vs Bearer Cheque

You will find Bearer word in every cheque. If you don’t cut this word or don’t make any type of crossing on your cheque, it will be assumed as Bearer Cheque.

Bearer cheque is a direction to the bank to pay a certain amount to the holder of the cheque. Therefore, anyone can encash the Bearer Cheque over the counter.

But, as aforesaid Account Payee Cheque can not be encashed through the counter. You have to deposit it in your bank. And you will get the amount as credit in your account.

There is no requirement of endorsement of a Bearer cheque. You can easily handover it to any person. So, it is highly unsecured because any person can encash it through the counter, who holds it. However, Bearer Cheque has no formalities of the clearing process and it doesn’t take time for encashment.

Contrariwise, you can not endorse the A/C Payee Only Cheque anyhow. And it takes 2 to 10 days for encashment.

For the encashment of Bearer Cheque, you have to represent it before the Drawer’s Bank, not in yours. However, you can convert bearer cheque into Account Payee Cheque by simply drawing two parallel lines.

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Terms Used to Understand Cheque Transactions

In this article, I have used many terms related to Cheque. So, it is necessary to understand the function of Cheque, we should discuss these terms.

Payee

A payee is that person who will get a certain amount from the Drawer of Cheque. He is like a Creditor. Therefore, the person or institution whose name is written on ‘PAYEE’ field of the cheque and who will get the payment, is Payee.

Remember, in the Endorsement case, the last endorsee will be Payee, because only he will get the amount. However, his name is not on the cheque.

Moreover, we can write Payee’s Account number on ‘PAYEE’ field with the name of Payee. For example, PAY TO MR. X A/C NO. 000000123. It will make the cheque more secure because it would be difficult for alteration on both at one time.

However, this act will create a problem for the payee, because then he would be bounded to deposit the cheque only in that account.

Bearer

A Cheque without Crossing and without A/C Payee words. This cheque has simply the name of Payee only. You can encash Bearer Cheque over the counter. Banks assume that the person who is holding this cheque, is the original Payee.

Crossing of Cheque

Two crossed parallel lines at the top left corner of a simple cheque, is Crossing of Cheque. You can not encash this cheque through the counter. But, only through the credit in your account.

Crossing makes the cheque secure, but not more than ‘A/C Payee Only’ Cheque. You can endorse it to another person.

Endorsement

Endorsement means the transfer of cheque from one person to another. As I stated above, you may endorse only the Crossed Cheque. When the receiver of Crossed Cheque has to pay someone, he can transfer that cheque to his Creditor. This is Endorsement.

For this, he has to write the endorsement instructions on the back of the crossed cheque.

Clearance

The procedure of making the cheque encashed. After depositing the cheque into the bank, the bank process the cheque with few steps. Then the Payee gets the payment. This whole process is Clearance.

A Clearing House receives the data and images of cheque online from the bank and process it. It forwards the process to the second bank. So, it plays the role of intermediary between the two banks for cheque clearance.

What is Canceled Cheque

When we draw two crossed parallel lines at the middle of the cheque and write ‘CANCELLED’ between these two lines. It is Cancelled Cheque. We don’t write anything else like, payee’s name, amount in numbers and words, date and signature on the cheque. Remember, the account number should be present on the cheque.

The main purpose of Cancelled Cheque is to give proof of holding an account with the bank. Cancelled Cheque is to be used for NEFT purpose.

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