What is a Cheque and What are the Different Types Of Cheques?

What is a cheque?

In simple terms, a cheque is a paper-based payment tool that tells the bank to pay a specific amount from the drawer’s account to the person named on the cheque. While digital payments are growing fast, cheques are important in banking.

Cheques are still widely used for salaries, loans, rent, and business payments. Also, due to their traceability, many legal and official transactions also prefer them.

​According to the Reserve Bank of India’s Payment System Indicators, cheque transactions in India totaled approximately ₹92 lakh crore during the financial year 2022–23. This substantial figure underscores that, despite the surge in digital payments, cheques play a significant role in India’s economic system.

Therefore, understanding the definition of a cheque and how it works helps you make safer and smarter payments. In this blog, we will explain the meaning of cheque in banking, its features, and the different types used in India.

Definition and Features of a Cheque

What is a Cheque?

A cheque is a written document instructing a bank to pay a certain amount to the person named in it. The drawer writes the cheque, and the payee receives the money.

In simple terms, a cheque is a bill of exchange drawn on a bank and payable on demand.

Key Features Of A Cheque:

Feature	Details
Written Document	Must be in writing (printed or handwritten)
Order to a Bank	Directs a bank to pay a specific amount
Signed by Drawer	Must carry the drawer’s signature
Payable on Demand	The payee can claim the amount at any time after the date
Specific Amount	Mentions the exact amount in numbers and words

Hence, these are the essential cheque features that make it a secure mode of payment. So, whether you are paying rent, business dues, or a personal loan, knowing what is a bank cheque helps avoid errors and fraud.

Importance of Cheques in Banking

Cheques play a key role in day-to-day financial operations. Most importantly, one of the benefits of cheques is that they offer a secure way to transfer large sums of money.

Hence, they are easy to track, making them useful in legal or business transactions. People often use cheques to pay salaries, loans, rent, insurance, and vendors. Since they come with the drawer’s signature and bank details, they offer a higher level of trust.

People use cheques because they carry legal backing under the Negotiable Instruments Act, 1881. Therefore, this gives parties the confidence that payments made via cheques are enforceable by law.

In many cases, especially with post-dated cheques, they help schedule future payments. Therefore, this makes cheque usage practical for loan repayments or EMIs.

Different Types of Cheques

There are several types of cheques, each with a different purpose in banking and financial transactions, based on their usage and security level. So, here is why people in India use different types of cheques for the following reasons:

1. Bearer Cheque: Anyone holding the cheque can encash it. You don’t need to show any ID. However, if the amount exceeds ₹50,000, your bank may ask you to show your ID. This is an identification request to comply with anti-money laundering regulations.
2. Order Cheque: The bank pays an order cheque only to the person named on it. However, the cheque needs an ID for encashment.
3. Crossed Cheque: You cannot cash a crossed cheque. Therefore, you must deposit it into a bank account.
4. Account Payee Cheque: You use an account payee cheque only when you transfer funds directly to the payee’s account. An account payee cheque means that it is the safest form; no third party can encash it.
5. Post-Dated Cheque (PDC): Dated for a future date. It is common in EMIs or rent payments.
6. Stale Cheque: Banks treat a cheque as stale when someone presents it after its 3-month validity expires. The bank cannot honour a stale cheque.
7. Self-Cheque: The account holder uses a self-cheque to withdraw money from their own account.
8. Blank Cheque: Only signed by the drawer. They leave the amount and name blank. Very risky.
9. Traveller’s Cheque: These are pre-paid cheques for safe use while travelling abroad.
10. Cancelled Cheque: A cheque with ‘CANCELLED’ written across it. People use it for KYC or as account proof, not for making payments.

Comparison Table: Bearer Cheque vs Order Cheque and More

Cheque Type	Payable To	Special Condition
Bearer Cheque	Holder of the cheque	No ID required
Order Cheque	Named individual	ID required
Crossed Cheque	Payee’s bank account	You cannot encash it directly
Account Payee Cheque	Payee’s bank account only	Most secure; not transferable
Post-Dated Cheque	Payee (on future date)	Not valid before the mentioned date
Stale Cheque	None (expired)	Valid only for 3 months from the date of issue
Self Cheque	Drawer (self)	Used to withdraw own funds
Blank Cheque	Any person (if filled later)	Can be risky; should be handled carefully
Traveller’s Cheque	Bearer while travelling	Pre-paid; safer for overseas transactions
Cancelled Cheque	No one	Used for account verification only

How to Fill a Cheque Correctly?

Writing a cheque may seem easy, but a small mistake can lead to rejection. Here’s a simple guide on how to write a cheque the right way.

How to Fill a Cheque: Step-by-Step Guide

Step 1: Date: Write the current date in the top right corner (DD/MM/YYYY).

Step 2: Payee Name: Mention the full name of the person or company receiving the payment.

Step 3: Amount in Numbers: Write the amount in the box, e.g., ₹1,500.00.

Step 4: Amount in Words: Write the amount in words. Add ‘only’ at the end.

Step 5: Signature: Sign at the bottom right. Use your regular banking signature.

Step 6: Crossing (Optional): For added security, draw two lines on the top left and write “A/C Payee Only”.

Common Mistakes to Avoid

• Leaving any field blank.
• Overwriting or using correction fluid.
• Using different ink colours.
• Forgetting the signature or a wrong signature.
• Writing mismatched amounts in words and numbers.

Tip: Always double-check the cheque-writing format before handing it over.

Image for Cheque:

Digital Alternatives to Cheques

While cheques are still used, many people now prefer faster, digital options. These methods are secure, instant, and paper-free.

Popular Alternatives to Cheques:

• UPI (Unified Payments Interface): Real-time payments using mobile apps like Google Pay, PhonePe, and BHIM.
• NEFT (National Electronic Funds Transfer): Ideal for transferring money between banks.
• RTGS (Real Time Gross Settlement): Used for large transfers above ₹2 lakh.
• Internet Banking: Transfer money, pay bills, or shop online.

According to data released by the National Payments Corporation of India (NPCI), Unified Payments Interface (UPI) transactions reached a record high of ₹24.77 lakh crore in March 2025, marking a 12.7% increase over February’s ₹21.96 lakh crore. This significant growth underscores the increasing preference for digital payments over traditional cheques.

While cheques still have their place in legal and post-dated transactions, digital tools are more common in day-to-day payments. So, if we debate digital payment vs cheque, many would favour digital payment due to its convenience.

Read More: What is a UTR Number? Your Guide to Unique Transaction References in India

Advantages and Disadvantages of Using Cheques

Advantages:

• Good for large transactions and business deals.
• Can be post-dated for future payments.
• It helps in areas where digital access is limited.
• Accepted as legal proof of payment.

Disadvantages:

• Processing takes time.
• Risk of cheque bounce or fraud.
• Requires manual filling.
• Banks can reject it due to small errors.

Despite the rise in digital payments, cheques offer value, especially in formal or legal settings.

Conclusion

To sum up, this is your quick cheque summary—a cheque is a written instruction directing a bank to pay a set amount from the drawer’s account to another party. It remains a widely trusted tool for both personal and business payments.

However, despite the surge in digital transactions, the cheque’s importance hasn’t faded. Cheques continue to support formal financial dealings such as post-dated payments, legal documentation, and high-value transfers.

Although cheques may be moving towards digital integration, their role in secure and verifiable transactions ensures their strong relevance in India’s financial ecosystem.

Businesses and MSMEs also rely on cheques for vendor payments, rent, or EMI disbursements. With digital-first lenders like FlexiLoans, companies can easily access capital while continuing to use cheques for formal or scheduled repayments.

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