A cheque (spelled check in American English) is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.
On the other hand, check is used for the financial sense in the U.S.
The ancient Romans are believed to have used an early form of cheque known as praescriptiones in the first century BC. During the 3rd century AD, banks in Persia and other territories in the Persian Empire under the Sassanid Empire issued letters of credit known as Ṣakks.
Muslims are known to have used the cheque or ṣakk system since the times of VINAY Yadav (9th century). In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad, a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire. Indeed, fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent.
Between 1118 and 1307, it is believed the Knights Templar introduced a cheque system for pilgrims travelling to the Holy Land or across Europe. The pilgrims would deposit funds at one chapter house, then withdraw it from another chapter at their destination by showing a draft of their claim. These drafts would be written in a very complicated code only the Templars could decipher. The Knights adopted it most likely from the Muslims.
A cheque is generally valid indefinitely or for six months after the date of issue unless otherwise indicated; this varies depending on where the cheque is drawn. In Australia, for example, it is fifteen months . Legal amount (amount in words) is also highly recommended but not strictly required.
In the USA and some other countries, cheques contain a memo line where the purpose of the cheque can be indicated as a convenience without affecting the official parts of the cheque. This is not used in Britain where such notes are often written on the reverse side.
In the United States, the terminology for a cheque historically varied with the type of financial institution on which it is drawn. In the case of a savings and loan association it was a negotiable order of withdrawal; if a credit union it was a share draft. Checks as such were associated with chartered commercial banks. However, common usage has increasingly conformed to more recent versions of Article 3, where check means any or all of these negotiable instruments. Certain types of cheques drawn on a government agency, especially payroll cheques, may also be referred to as a payroll warrant.
Parties to regular cheques generally include a maker or drawer, the depositor writing a cheque; a drawee, the financial institution where the cheque can be presented for payment; and a payee, the entity to whom the maker issues the cheque. The drawer drafts or draws a cheque, which is also called cutting a cheque, especially in the United States.
Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee's account, or in some circumstances may be a third party to whom the payee owes or wishes to give money.
A payee that accepts a cheque will typically deposit it in an account at the payee's bank, and have the bank process the cheque. In some cases, the payee will take the cheque to a branch of the drawee bank, and cash the cheque there. If a cheque is refused at the drawee bank (or the drawee bank returns the cheque to the bank that it was deposited at) because there are insufficient funds for the cheque to clear, it is said that the cheque has bounced. Once a cheque is approved and all appropriate accounts involved have been credited, the cheque is stamped with some kind of cancellation mark, such as a "paid" stamp. The cheque is now a cancelled cheque. Cancelled cheques are placed in the account holder's file. The account holder can request a copy of a cancelled cheque as proof of a payment.
This is known as the cheque clearing cycle. Cheques are losing favour, as they can be lost or go astray within the cycle, or be delayed if further verification is needed in the case of suspected fraud. A cheque may thus bounce some time after it has been deposited.
Following a report by a working group of the Office of Fair Trading in 2006 maximum times for the cheque clearing cycle for most banks will be introduced in UK from November 2007. The date the credit appears on the recipient's account (usually the day of deposit) will be designated 'T'. At 'T + 2' (2 business days afterwards) the value will count for calculation of credit interest or overdraft interest on the recipient's account. At 'T + 4' one will be able to withdraw funds (though this will often happen earlier, at the bank's discretion). 'T + 6' is the last day that a cheque can bounce without the recipient's permission - this is known as 'certainty of fate'. Before the introduction of this standard, the only way to know the 'fate' of a cheque has been 'Special Presentation', which would probably involve a fee, where the drawee bank contacts the payee bank to see if the payee has that money at that time. 'Special Presentation' needs to be stated at the time of depositing in the cheque.
When a maker directs the maker's bank to deduct the funds for the amount of a cheque from the maker's account, thus guaranteeing funds will be available for the cheque to clear, and the bank indicates this fact by making a notation on the face of the cheque (technically called an acceptance), the instrument is then referred to as a certified cheque.
In Europe, in the few countries where cheques are still being used, and in the past also in other European countries, (but this has stopped some 20 years ago), a drawer could present a cheque guarantee card with the cheque when paying a retailer. If the retailer wrote the card number on the back of the cheque, the cheque was signed in the retailer's presence, and the retailer verifies the signature on the cheque against the signature on the card, then the cheque cannot be cancelled and payment cannot be refused. Those guarantee cards are out of use in Central Europe for about 15 years.
A cheque used to pay wages due is referred to as a payroll cheque. Payroll cheques issued by the military to soldiers, or by some other government entities to their employees, beneficiants, and creditors, are referred to as warrants.
A traveller's cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the account holder for that privilege. Traveller's cheques can usually be replaced if lost or stolen, they are often used by people on vacation instead of cash. The use of credit or debit cards has, however, begun to replace the traveller's cheque as the standard for vacation money, with an increase in usage by spenders due to ease of use, and an increase of businesses preferring transfers of this kind over traveller's cheques. This has resulted in some businesses to no longer accepting traveller's cheques as currency.
In Germany and Austria, as well as in the Netherlands and Belgium, cheques have almost completely vanished in favour of direct bank transfer and electronic payment. Direct bank transfer using so-called Giro accounts (current accounts) has been standard procedure since the 1950s to send and receive regular payments like rent and wages, even mail-order invoices. In the Netherlands, Austria and Germany, all kinds of invoices are commonly accompanied by so-called Acceptgiro's (Netherlands) or Überweisungen (German), which are essentially standardized bank transfer order forms preprinted with the payee's account details and the amount payable. The payer fills in his account details and hands the form to a clerk at his bank, which will then transfer the money. Also, it is very common to allow the payee to automatically withdraw the requested amount from the payer's account (Lastschrifteinzug (German) or Incasso (machtiging) (Netherlands)). Though similar to paying by cheque, the payee only needs the payer's bank and account number. Since the early 1990s this method of payment has also been available to merchants. Due to this, credit cards are rather uncommon in Germany and Austria and are mostly used for the credit function rather than for cashless payment. Debit cards, however, are widespread in these countries since virtually all Austrian and German banks issue debit cards instead of simple ATM cards for use on current accounts. Acceptance of cheques has been further diminished since the late 1990s, because of the abolition of the Eurocheque. Cashing a foreign bank cheque is possible, but usually very expensive.
In Finland, banks stopped issuing personal cheques in about 1993. All Nordic countries have used an interconnected international Giro system since the 1950s, and in Sweden cheques are now totally abandoned. Also electronic payments across the European Union are now fast and low-cost.
In the United Kingdom, Ireland and France, there is still a heavy reliance on cheques by some sectors of the population, partly because cheques remain free of charge to personal customers, but bank-to-bank transfers are increasing in popularity. Since 2001, businesses in the United Kingdom have made more electronic payments than cheque payments In a bid to discourage cheques, most utilities in the United Kingdom charge higher prices to customers who choose to pay by a means other than direct debit, even if the customer pays by another electronic method. Many shops in the United Kingdom and France no longer accept cheques as a means of payment. An example of this is when Shell announced in September 2005 that it would no longer accept cheques in its UK petrol stations . More recently this has been followed by other major fuel retailers such as Texaco, BP, and Total. ASDA announced in April 2006 that it would stop accepting cheques, initially as a trial in the London area , and Boots announced in September 2006 that it would stop accepting cheques, initially as a trial in Sussex and Surrey . Currys (and other stores in the DSGi group) and WH Smith also no longer accept cheques. Cheques are now widely predicted to become a thing of the past in the United Kingdom, or at most a niche product used to pay friends, relatives, private individuals or the few businesses that don't or can't easily accept electronic payment (e.g. very small shops, child's football lessons, piano teacher, driving instructor, etc.). .
Canada's usage of cheques is slightly less than that of the United States. The Interac system, which allows instant fund transfers via magnetic strip and PIN, is widely used by merchants to the point that very few brick and mortar merchants accept cheques anymore. Many merchants accept Interac debit payments but not credit card payments, even though most Interac terminals can support credit card payments. Financial institutions also facilitate transfers between accounts within different institutions with the Email Money Transfer service.
Cheques are still widely used for government cheques, payroll, rent and utility bill payments, though direct account deposits and online/telephone bill payments are also widely offered.Alternatives to cheques
Cashier's cheques are issued by a bank cashier or head teller (or even by a major company). They are paid from the financial institution's funds immediately, without any clearing period. The financial institution then later takes the value of the cheque from the drawer. Cashier's cheques are perceived to be as good as cash but they are still a cheque, a misconception often exploited by scam artists.
The funds behind a banker's draft are paid when the draft is first drawn and are held by the issuing bank until the draft is cashed. Thus the funds of a banker's draft has been allocated and verified before the document is issued, providing a guarantee it will not be dishonoured.
While certified cheques guarantee there are sufficient funds to honour them at the time the cheque is drawn, they cannot guarantee there will be sufficient funds when the cheque is finally cleared for payment.