Account Payee Cheque
The account payee cheque is a payment instrument that simplifies financial processes, adding an extra layer of security and accountability. By writing "account payee" or "A/C payee only" on the cheque, the person instructs the bank to transfer funds directly to the specified beneficiary's bank account. It prevents fraud and unauthorised transactions, promoting electronic money transfers rather than cash deals.
What Is An Account Payee Cheque?
An account payee cheque is a special cheque that provides extra security for both the person issuing the cheque (the drawer) and the recipient (the payee). When you issue an account payee cheque, the funds can only be deposited into the bank account of the named payee on the cheque. It prevents anyone else from misusing the cheque and accessing the funds.
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Terms Associated With Account Payee Cheque
To understand how an account payee cheque works, it helps to know these three important terms:
1. The Drawer: The drawer is the person who writes and signs the cheque. Typically, the money comes from the drawer's bank account.
2. The Drawee: The drawee is the financial institution, usually a bank, where the cheque is deposited for payment. The drawer instructs the drawee to deduct the specified amount.
3. The Payee: The payee is the recipient (the person who gets money) of the cheque. It can be an individual or a company to whom you can transfer the money.
With an account payee cheque, the drawer (the person who writes the cheque) instructs the drawee bank to only deposit the funds into the account of the named payee on the cheque. It provides an extra level of security since regular cheques do not have such restrictions.
Types of Crossing Cheques
In addition to account payee crossing, there are other types of crossing for cheques:
1. General Cheque Crossing: Imagine drawing two lines across the cheque, creating a mini fence. With general crossing, the cheque can only be deposited into a bank account, not cashed over the counter.
2. Special Cheque Crossing: Similar to general crossing, but here we add the name of a specific bank within the fence. The cheque can only be collected through that bank.
3. Restrictive Cheque Crossing: This crossing restricts the cheque's negotiability, instructing the banker to credit the amount only to the receiver's account.
4. Not Negotiable Cheque Crossing: Adding "Not Negotiable" within the crossed lines clarifies that the cheque can't be transferred further. However, the receiver can still deposit it into their account.
By understanding these simple types of cheque crossing, you can ensure safer and more controlled transactions!
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Features of Account Payee Cheque
There are several features of account payee cheques which make them an ideal choice for secure transactions:
1. Payee specification: They are issued in the name of a specific payee, ensuring only that recipient receives the funds.
2. Non-transferability: Once issued to a payee, the cheque cannot be endorsed or transferred to anyone else.
3. Increased security: They are considered one of the safest types of cheques due to crossing instructions and the "Account Payee Only" endorsement.
4. Limited validity period: They typically expire after three months to encourage fast encashment.
5. Drawer's control: The drawer has control of the cheque until it is successfully deposited into the payee's account. It allows the drawer to verify the authenticity of the transaction.
6. Encashment through bank only: Unlike bearer cheques, they can only be deposited into the payee's bank account. It ensures the funds are securely transferred through the banking system.
How to Cross a Cheque: Simple Steps For Added Security
Do you want to know how to cross a cheque? Crossing a cheque is easy. It is the best way to make your transactions more secure. Let's see how:Step 1: Double Cross Line: Draw two lines like a mini fence on the upper left corner of the cheque. It is called crossing the cheque.
Step 2: "Account Payee Only": Between the double cross lines, write "A/c Payee Only." It ensures the money goes only to the account of the person named on the cheque.
Step 3: Full Name of Payee: Always write the full name of the person or organisation you're paying. No abbreviations!
Step 4: No Extra Spaces: Cross out any extra spaces left on the cheque. Don't give room for alterations.
Step 5: Cancel "Bearer": If the word "Bearer" appears on the cheque, cancel it. It prevents anyone from cashing the cheque like cash.
Step 6: Mention Exact Amount: Clearly write the exact amount in both words and numbers. It helps avoid any confusion.
Step 7: Check Details Carefully: Before signing the cheque, double-check all the details to ensure accuracy.
These simple steps will make your crossed cheque more secure and give you peace of mind in your financial transactions.
How to Deposit an Account Payee Cheque
To deposit an account payee cheque and receive the amount in your bank account, follow these steps:
1. Endorse the Cheque: Sign on the back of the cheque, endorsing it for deposit into your account.
2. Visit Your Bank: Take the cheque, Aadhaar, and account number to your bank.
3. Fill out a Deposit Slip: Complete the deposit slip with your account number and the cheque amount.
4. Hand Over the Cheque: Submit the cheque, deposit slip, and identification to the teller.
5. Wait for Clearance: The cheque may take a few days to clear. The amount will be credited to your account.
Account payee cheques provide a secure way to make payments by ensuring funds are deposited only into the named recipient's bank account. With features like limited validity periods and restrictions on transferring the cheque, they reduce the risk of fraud and misuse. Different types of crossing cheques allow for customisation, providing additional security. These cheques build trust in financial transactions, helping create a reliable banking system.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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