A cheque (British English, and several other languages) or check (American English), thought to have developed from Persian چك chek, is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.
History
The cheque had its origins in the medieval banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (e.g. gold) to purchase goods. A draft is a bill of exchange which is payable on demand of the payee.
Types of cheques
In the United States, cheques are governed by Article 3 of the Uniform Commercial Code. An order cheque – the most common form in the US – is payable only to the named payee or his or her indorsee, as it usually contains the language "Pay to the order of (name)." A bearer cheque is payable to anyone who is in possession of the document: this would be the case if the cheque does not state a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the cheque is payable to someone who is not a person or legal entity, e.g. if the payee line is marked "Happy Birthday".
In the United States, the terminology for a check varies with the type of financial institution on which it is drawn. In the case of a savings and loan it is a negotiable order of withdrawal; if a credit union it would be a share draft. Cheques as such are associated with chartered commercial banks, but under Article 3, and thus in common usage, cheque is understood to mean any or all of these negotiable instruments.
Parties to regular checks generally include a maker, the depositor writing a cheque; a drawee, the financial institution where the check can be presented for payment; and a payee, the entity to whom the maker issues the check. Ultimately there is also at least one indorsee 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 check to clear, it is said that the cheque has bounced.
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 .
A check 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.
When a 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, it is referred to as a travelers cheque. As travelers cheques can usually be replaced if lost or stolen, they are often used by people on vacation in place of cash. The use of credit cards has, however, rendered them less important than they previously were; there are few places that do not accept credit cards but do travelers cheques – in fact, nowadays, many places do not accept the latter.
A cheque sold by a post office or merchant such as a grocery for payment by a third party for a customer is referred to as a money order or postal order.
A cheque issued by a bank on its own account for a customer for payment to a third party is called a cashier's cheque or a treasurer's cheque . A cheque issued by a bank but drawn on an account with another bank is a teller's cheque.
In addition to issuing cashier's and teller's cheques, banks often sell money orders, and travelers cheques are usually purchased from banks.
Some public assistance programs such as Women, Infants, and Children or Aid to Families with Dependent Children make vouchers available to their beneficiaries, which are good up to a certain monetary amount for purchase of grocery items deemed eligible under the particular program. The voucher can be deposited like any other check by a participating supermarket or other approved business.
See also
External links
Last updated: 08-29-2005 16:21:13
