I know whoever have bank account might have come across these two words while writing cheque or interacting with the bank. But do you know the difference between these two and how and at what time one must opt for these two facilities of writing cheque?
Before proceeding further, first let us understand the parties involved in cheque transactions. There are mainly three parties involved in cheque transactions and are as below.
1) Drawer-He is a person who holds the account and has written and signing authority on cheque. Therefore, he issues cheques of his bank account. He is directing banks to pay a certain amount of money to certain person or to the bearer of the cheque. So in simple words you may say that a person who holds bank account and who sign on cheque is called the drawer.
2) Drawee-Drawee is a party upon whom the cheque is written. The drawee is your bank. So drawer is giving instruction to drawee to pay an amount mentioned on the checque to the person named or to the bearer of the checque. When your bank follows the instruction and pay the cash to the person whose name mentioned on cheque or to bearer of cheque then it is called as “cheque is honored”. If payment not done, then it is called “cheque dishonored”.
3) Payee-He is a person to whom the payment will be made. His name will be mentioned on cheque, so he is an authorized person to receive cash. So if drawer himself need to withdraw cash from his account using cheque then he need to write as SELF in payable field of cheque. In such case drawer himself becomes payee.
What is Crossed Cheque?
From above image, you notice how to change the normal cheque leaf into crossed cheque. Once you cross the cheque and mention the payee name (in above example, it is my name) then I can only encash this cheque by depositing to my Bank Account. However, do remember that in crossed cheque payee is free to make further endorsement. For example, in the above example payee name is mine. Instead of cashing it to my bank account I can further endorse the cheque to anyone, for example to Mr. Satish by writing and signing on back of cheque leaf. Further Mr.Satish either can encash this cheque or he can endorse to someone, for example to Mr.Rohan by writing and signing on back of cheque leaf.
So by mere crossing you are no longer making payment to PAYEE ONLY. The payee can further endorse or cash it according to his wish. Also in case of dishonor of cheque (in the above example), Mr.Rohan can sue Mr.Satish and in return Mr.Satish to me and finally I can sue to the drawer of cheque.
What is Account Payee Cheque?
You notice that along with crossing two lines at the corner you also need to write as “A/C Payee Only”. If you do so, then one can’t endorse the same cheque to others. So in the above example the cheque must be encashed by depositing to payee account (In the above example it is in my name). This makes secured payment to payee only, but any other third parties. This protects any misuse of cheque.
Few best practices of writing cheque–
In below image I mentioned few best practices while writing cheque. Hope it will be helpful for you.