All About A Cheque

Banyan Financial Advisors

www.banyanfa.com

In the era of rapid technology enhancements, I am sure

many of you would be using cheques as a part of your day
to day banking needs and if you do, perhaps the content
of this article may sound basic. However based upon my
ongoing interaction with people, I have come to notice
that not all know about this important financial instrument
and the key safeguards which they must observe to
prevent any financial inconveniences or at worse frauds. A
lot of the content in this article is relevant for global usage
of cheques and some of the content may be relevant just
for India. We will split this article into basics of a cheque
and top tips for its safe usage.

Basics First
Cheque is a mechanism to allow people access the funds
in their bank accounts. This could be either used to
withdraw cash or to transfer funds to some one elses
account by providing them a filled cheque. The basic
security behind a cheque can be closely related to a twofactor authentication, i.e. combination of what you have
+ what you know. You need to have an authentic cheque
book issued by a bank which incorporates multiple
security features to prevent forgery. Just handing over a
blank cheque to a recipient would not help, you would
also need to sign it (What you Know) with the same
signatures which you have provided to your bank.

Lets have a look a sample cheque to understand a few of

its features (see image below). We have highlighted a few
areas in red numbered stars

1.
2.

3.

4.
5.
6.
7.
8.

A cheque needs to be addressed to a recipient or a payee. Payee name

is written in the first line of the cheque, e.g. in our example Adam
Jones
Cheque needs to be dated (top right hand corner). You have a
flexibility to issue a post dated cheque in future. But remember that a
cheque looses its validity within 3 months of the date written on the
cheque (Star 8)
Cheque has to have an amount both in numbers (Star 5) and in words.
Both the amount in numbers and in words need to match else the
bank will reject the cheque payment. This is one of the security
features which aims to prevent a fraudulent modification of the
amount.
Your bank account number is mentioned in the bottom left Star 4
Your branch address and its identifier IFSC code is on the top (Star 2)
Electronic clearing 9 digit MICR code is written in the bottom middle
(Star 7)
The current cheque number is just besides (on the left) the MICR code
(star 6). In our example the cheque number is 000148.
If you are issuing a cheque to a person for bank clearing, you must
draw two oblique parallel lines with the words Account Payee Only on
the top left hand corner. This will enforce that the cheque can only be
encashed in the account of the payee whose name is written on the
cheque.

Safe guards while using a cheque

As you may have noticed, a cheque is an instrument used to
transfer your money from your account to another. If misused, this
may result in your hard earned money being transferred to an
unintended recipient with limited recourse. In this section we will
highlight a few tips to prevent common fraudulent practices
1. Note the Cheque Number
If you issue a cheque to a person and want to recall it back, you
must know which cheque number it was so that you can instruct
your banker to put a stop payment instruction on that specific
cheque. If you dont recollect the specific number, you may have
to put a stop payment on ALL cheque numbers issued till date or
guess the cheque number. This may put you in grave
inconvenience if some of the cheques are genuinely issued, e.g.
towards loan payments or other bill payments and will have
adverse consequences if the payment gets rejected. To prevent
this, each cheque book has 2-3 pages just in the front of the
cheque book or in the rear end where you can make a note of the
cheque numbers, whom they were issued to and amount. This can
come very handy for both tracking a missing cheque, accounting

2. Back Your Cheque With Funds

Never issue a cheque which you know will not be honored by your
banker owing to lack of funds. This can attract several legal actions
and penalties. In addition, be assured that your bank will charge you
for each bounced cheque. And not to mention the negative impact it
impact it has on your financial good will. The smaller amount a cheque
has, the more negative impact it has on your goodwill.
3. Open Dated Cheques
Always write a date on your cheque before issuing it. A cheque is valid
only upto 3 months from the date written on the cheque. Providing an
undated cheque to a person may create a hassle for you as this will
give the recipient flexibility to bank it whenever he wants and for you
to always keep your bank account funded. For example, if you issued a
cheque without a date for Rs. 1 lac on 1 Jan 2013. The recipient can
bank it even after a few years after putting the date before banking it.
And if you have forgotten about that cheque and your account doesnt
have funds, you will be liable make good his damages + legal
consequences + bank charges. If you have to provided an open dated
cheque, e.g. to a bank as a part of home loan documents, keep a note
of the cheque number so that you can track such cheques.

4. Empty Spaces in a Cheque

A cheque provides sufficient space to fill in the amount and payee
section. You must follow the following tips while filling the cheque :
1. Do not leave any gap between the start of the field and where
you write. See Star 9 and 5 in the sample cheque image. For
example, there is a gap between Rupees field and the word
Five. Also there is a gap in the Amount in numbers field
before the number 5000. Nothing prevents a fraudulent
person to modify 5000 to 55000 by just adding another 5
before 5000 and also adding Fifty before the word Five
Thousand to make it read Fifty Five Thousand. Hence in
summary, start writing from extreme left hand side of the field.
Same goes with the Payee name as well.
2. It is a healthy practice to finish the amount in words with the
words Only. In our example, you could write Five Thousand
ONLY. This prevents a fraudulent person to modify it further
saying Five Thousand and nine hundred. The amount in
numbers could be slightly modified to make 5000 as 5900.
3. Where possible, you could strike the empty space with a line.

5. Double Signatures
If you are writing a critical cheque and you want to be absolutely
sure that your banker does not reject the payment owing to slight
mismatch of your signatures, you may sign again just besides your
signature so that the banker has additional comfort on your
signature. However, the signatures should not be completely
different as this will mostly likely be rejected.
6. White Space below the Cheque
Please do not write or sign in the white strip at the bottom of your
cheque. This strip contains key information which is read by
automated machines while clearing your cheques. If you write any
thing on this strip, it is likely that the machine may not be able to
read your cheque and could have a consequences of delayed
clearance or rejection.

7. Safe Custody
Your cheque books must not be kept in easy accessibility of
prying eyes. Where possible, keep them in lock and key. They
are a gateway to your bank account and the chances of
forgery and fraudulent transactions increases if a person has
access to even a single cheque leaf. And annoyingly, you may
not even be aware if a person sneaks out one cheque leaf
from your cheque book !
8. Ink Used for Writing A Cheque
Whilst the chances are less, but you should avoid writing a
cheque with a pen whose ink could be washed away or
erased. There have been remote frauds which you could read
on the internet where a special ink was used by a fraudster for
preparing a cheque. This ink could be erased later on without
leaving a mark on the cheque. To be on a safer end, we would
suggest to use a ballpoint pen (also called as a ball pen or a

9. Alteration of Cheques
This is very specific for India. Banks no longer accept any
alteration on the cheques. Earlier if you had to alter say payee
name or amount field, you could sign again near the alteration
and the cheque was usable. But now the banks will reject such
cheques presented for payment.
10. Blank Signed Cheques
This is a strict No-No. This is as simple as inviting some one to
empty your bank account. This is mostly done by young
professionals and NRI who leave a blank signed cheque book
with their parents or with their brokers. You may not doubt
your parents, but what if some one steals that cheque and fills
it in their favour. You could rather add your parents as a joint
holder to your account and give them signing authority
instead of providing a blank sign cheque.

11. Crossing Account Payee

This is an excellent safeguard (see Star 1 in the image above).
By writing the words Account Payee only in the between the
crossed lines, you are instructing the bank that they must pay
the amount only in the account of the payee mentioned in the
cheque. For example, if you issue a cheque which is not
crossed and it goes missing. Any person who finds the cheque
could potentially encash the cheque by visiting the bank.

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