Whenever we think about a cheque, we already have some basic ideas as to what it is. Simply put, a cheque is a written instruction to a bank to release a specified sum of money from a particular bank account. As an example, if you have a current account with a bank, you will be given a chequebook.
By putting in the information (amount, date, recipient's name (optional), and your signature), you can instruct the bank to make a payment to a recipient while you are away. Unless there are special circumstances, banks typically release funds when presented with signed cheques. But when we divide it into two parts—one is the bearer cheque and another is the orderer cheque—it creates difficulty for us to understand. We will help you to understand what it is.
Bearer cheque vs. Order cheque
Bearer cheques are those which denotes the bearer, or the person holding the cheque who submits it to the bank, receives payment. Order cheques, on the other hand, work exactly the opposite way since only the person whose name the drawer designates as the payee may accept the payment. By signing the reverse of the cheque, the payee can also provide it to a third party who can accept payment on their behalf. The words on the cheque leaf itself are the most reliable way to determine if a cheque is an order or a bearer. The word "or bearer" is mentioned on the bearer cheque. In contrast, the words "or bearer" or "or order" are present following the payee's name in order cheques.
Difference between bearer cheque and order cheque in tabular form
|Parameters of comparison||Bearer cheque||Order cheque|
|Meaning||A bearer cheque is made payable to the bearer, meaning that the owner receives payment when they carry and present the cheque at the bank counter.||When the lone individual named on the cheque shows it at the bank's counter, the order cheque is considered payable.|
|To identify||"Bearer" appears at the end of the payee's name.||Order" appears after the payee's name|
|Encashment||Any person possessing or carrying the cheque can cash it.||Cheques may only be cashed by the payee or on his instruction.|
|Transferred through||Simple delivery||Proper endorsement|
|Recipient||The signature of the recipient serves as the receipt itself.||Only an endorsement is made by the payee's signature on the cheque.|
|Conversion||A bearer cheque may be changed into an order cheque by the drawer.||An order cheque cannot be changed from a bearer cheque by the drawer|
What is a bearer cheque?
A bearer cheque is made out to the person carrying it and presenting it to the bank for payment. By paying the bearer in good time, the bank is released from liability in this way. The transfer of a cheque from bearer to order is an exception, though.
So it can be simply stated as follows: "A bearer cheque is made payable to the person holding it. A bearer cheque doesn't need to be endorsed in order to be cashed. In other words, the banker does not insist on knowing who presented the cheque. Or, to put it another way, a bearer cheque may be freely delivered from one person to another. All SB cheques that are issued by Indian banks are bearer cheques because they have the word "bearer" printed on them. Additionally, even if a cheque has an endorsement on the back, it is still considered a bearer's cheque if it was initially paid payable to the bearer.
Important points about bearer cheques
- Although it is not required to obtain the cheque holder's signature prior to encashment, However, the bank requires the holder to sign the cheque in the cashier's presence at the rear for security reasons. This is to formally acknowledge the bank's receipt of the funds.
- Additionally, the paying cashier need not take many steps to determine the loyalty of the payee's ownership. Even so, the bank does not request identity from the bearer; nevertheless, if the sum is significant, the bank may request identification.
- Such cheques are transferred through straightforward delivery. This indicates that if you present the cheque to the bank, the bank will pay you using the cheque as collateral. Furthermore, in this instance, no further authorization from the issuer is required.
How to write a bearer cheque
The majority of people believe that writing a bearer cheque is the simplest financial chore there is. This cheque must be written with the same caution as other sorts of cheques. Let's examine the procedure for writing this kind of cheque. The various instructions for writing a bearer cheque are listed below.
- On every cheque, be sure to include the date.
- The word "self" or "pay to the order of cash" must be written in the designated space on the cheque by the issuer or person who wrote it.
- Give a clear explanation of the amount in both words and digits. When expressing it verbally, finish your sentences with the word "only." If the cheque ends up in the wrong hands, the person may add additional funds without using the word "only." In such a case, you stand to lose a lot.
- Use a backslash (/) whenever you enter a quantity in digits.
- In the space provided, sign the cheque. The term "authorized signatory" helps to identify as a hint. Above these words, you must sign.
What is an order cheque?
An order cheque is any cheque with the words "or order" following the payee's name or any cheque with the word "bearer" crossed out.
The person whose name appears on these cheques receives payment from the bank. This indicates that the bank is required to pay money only to the payee, or the person who has been given an order. Therefore, the payee may either receive the funds against the cheque or may, in writing, designate another person to receive the funds. So we can state it as follows: an order cheque is made payable to a specific individual or his order. If it's an order cheque, it can be delivered and endorsed to another person. To put it another way, the cheque should be endorsed first, then given to the designated recipient.
Therefore, whenever a paying banker doubts that the presenter is not authorized to receive the payment, he or she may make the necessary inquiries about the identity of the payee before making payment of an order cheque.
Important points to remember
- By way of endorsement, the cheque is transferred. An order cheque must have both the payee's signature and the endorsee's signature if the payee endorses it in favor of another person. The bank is released from liability in this manner.
- These cheques have a clause that states that the money will only be released when the person listed on the cheque submits the cheque to the bank. Also,
- At the time the cheque is presented, the bank does a background cheque to confirm the identification of the cheque's holder. These cheques are paid by debiting the bank account.
- Only after being certain of the payee's ownership rights does the bank's paying cashier release the money and make the payment. If not, the cashier paying would be liable for the same.
Characteristics of an order cheque
- It is a negotiating tool.
- could or might not include the phrase "or order."
- Only the designated individual or an authorized person may cash it.
- can be recommended to someone else by another person.
- Risky if not made as an account payee or crossed cheque.
- In order to insist on payment for an order, identification is typically needed.
- It may be deposited into the designated bank account or withdrawn by the designated individual.
Points to remember while issuing an order cheque
- By way of endorsement, the cheque is transferred. An order cheque must have both the payee's signature and the endorsee's signature if it is endorsed in favor of another individual. The bank is released from liability in this manner.
- These cheques have a clause that states that the money will only be released when the person listed on the cheque submits the cheque to the bank.
- At the time the cheque is presented, the bank also runs a background cheque to confirm the identification of the cheque's holder. These cheques are paid by debiting the bank account.
- When the bank's paying cashier is confident in the payee's ownership rights, only then does he release the funds and make the payment. Otherwise, the cashier would be held accountable for the same.
Validity of an order cheque
A cheque typically has a validity period of up to three months, starting on the date specified in the order. The cheque will therefore become invalid and unable to be cleared or cashed after three months from the date on the cheque.
Steps to fill an order cheque
- Take a new cheque.
- The date should be entered in the right-top corner. Afterward, type the recipient's name. Enter the number for the amount. Also include the dollar number in words.
- The cheque must be signed.
- Verify that it is not a bearer cheque at the end. It needs to be an order cheque. If the phrase "or bearer" appears anywhere in the text, it needs to be deleted.
Difference between bearer cheque and order cheque in points
- A bearer cheque is one that can be cashed by anyone who brings it to the bank's counter to be paid. A cheque that is payable to the payee or any other person whom the payee authorises is called an order cheque.
- 'Or bearer' is written after the payee's name on bearer cheques. Contrarily, the phrase "or order" appears after the payee's name on order cheques. Additionally, the cheque becomes an order one when the word "or bearer" is deleted.
- The bearer's cheque can be cashed by the payee directly or by anyone else to whom it is provided. Only the person whose name the drawer lists on the order cheque as the payee may accept payment in the case of an order cheque. Furthermore, the money may be given to anyone the payee authorises.
- Bearer cheque transfers can be made via straightforward delivery. On the other hand, an appropriate endorsement is the sole way to transfer ownership of the order cheque.
- In the case of a bearer cheque, the receipt is created by the recipient's signature on the cheque's back. On an order cheque, however, the payee's signature solely serves as an endorsement.
In cases where payment is made to the wrong person.
- Well, in the event of a bearer cheque, neither the banker nor the drawee is accountable. Therefore, the bank would not be responsible if it paid the bearer of a stolen cheque. However, the paying cashier is required to conduct a preliminary investigation into the recipient's identity in the case of an order cheque. After that, when he is happy with the information presented, he can make a payment. However, the bank (drawee) will be held accountable if the cashier pays money to the incorrect person.
- A bearer cheque may be changed into an order cheque by the drawer. nevertheless, by just deleting the word "or bearer." Contrarily, it is impossible to change an order cheque into a bearer one.
- Only an endorsement is made by the payee's signature on the cheque. On the other hand, the signature of the recipient serves as the receipt itself.
Now we know that a bearer cheque is a type of cheque that can be cashed by anyone who is carrying it to the bank's counter to be paid and get payment. But a cheque that is payable to the payee or any other person whom the payee authorises is called an order cheque. This is the most basic distinction between the barrel cheque and the order cheque. Here in this article, we have gone through various important points that will help us make sure that we will never get confused while discussing the cheque or related terms.