What Is An Account Payee Cheque?
An account payee cheque is a secure cheque issued in favor of a specific payee’s bank account. It can only be deposited into the payee’s account and cannot be cashed over the counter. The cheque ensures that funds are directly transferred to the intended recipient, preventing unauthorized cashing. Marking a cheque as “account payee” guarantees that the amount will only be credited to the payee’s bank account, enhancing security in financial transactions.
Related Read: What is a Bank Cheque Book?
Key Features of an Account Payee Cheque
Table of Contents
1. Payee Specification
Issued in the name of a particular payee, ensuring that only the designated recipient receives the funds
2. Non-transferability
The cheque cannot be endorsed or transferred to anyone else once issued to the payee
3. Increased Security
Considered one of the safest types of cheques due to crossing instructions and the “Account Payee Only” endorsement, which helps prevent fraud
4. Limited Validity Period
Typically expires after three months, encouraging prompt encashment
5. Drawer’s Control
The drawer retains control over the cheque until it is successfully deposited into the payee’s account, allowing for verification of the transaction’s authenticity
6. Encashment Through Bank Only
Funds can only be deposited into the payee’s bank account, ensuring secure transfer through the banking system
How to Write an Account Payee Cheque? A Step-by-Step Guide
STEP 1: Fill in the date.
Write the current date on the top right corner of the cheque to indicate when it is issued.
STEP 2: Write the payee’s name (ensuring accuracy)
Clearly write the name of the person or organisation receiving the payment, ensuring correct spelling to avoid any issues.
STEP 3: Cross the cheque with two parallel lines.
Draw two parallel lines across the cheque to signify that it is an account payee check, restricting cashing.
STEP 4: Write “Account Payee” between the two lines.
Write “Account Payee” between the parallel lines to further specify that only the payee can deposit the cheque.
STEP 5: Enter the amount in both words and figures.
Clearly write the amount being paid in both numerical form and in words to prevent any discrepancies.
STEP 6: Sign the cheque.
Finally, sign the cheque at the bottom right corner, as your signature authorises the payment.
How to Deposit an Account Payee Cheque?
STEP 1: Endorse the Cheque
Sign your name on the back of the cheque to endorse it for deposit into your account.
STEP 2: Visit Your Bank
Go to your bank branch with the endorsed cheque and bring along a valid form of identification, such as your Aadhaar card.
STEP 3: Fill out a Deposit Slip
Complete a deposit slip with your account number and the amount of the cheque. Ensure all details are accurate to avoid any issues.
STEP 4: Hand Over the Cheque
Submit the endorsed cheque along with the completed deposit slip and your identification to the bank teller.
STEP 5: Wait for Clearance
After submission, the cheque will be processed, which may take a few days to clear. The amount will be credited to your account once cleared.
Important Terms Related to Account Payee Cheques
1. The Drawer
The drawer is the individual or entity that issues the cheque. This person or organisation can authorize the bank to pay a specified amount to another party. Writing the cheque, indicating the amount, and identifying the recipient are all part of the drawer’s responsibility when issuing the cheque.
The drawer should always ensure they have sufficient funds to pay the amount specified in the cheque. Insufficient funds might cause the cheque to bounce, resulting in penalties and ruining the drawer’s financial status.
2. The Drawee
The drawee is the bank or financial institution where the drawer holds their account. When a cheque is presented for payment, it is the drawee’s responsibility to process it. They confirm that the drawer’s account has adequate funds to cover the requested amount and the check’s validity. Upon successful verification, the drawee pays the amount directly to the payee’s account.
3. The Payee
The payee is the individual or entity named on the cheque and entitled to receive the funds. Their role in this process is very important as they are the intended recipient of the payment. With an account payee cheque, only the payee can receive and deposit the funds into their bank account, improving transaction security.
Different Types of Crossing Cheques
1. Account Payee Crossing
Account payee crossing is a particular type of cheque crossing that enhances security by restricting the payment to the payee’s account only. This is indicated by the “A/c Payee” written between two parallel lines drawn on the cheque.
This marking signifies the cheque cannot be cashed at a bank counter but must be deposited into a bank account, ensuring a secure transaction to the payee’s account only.
2. General Cheque Crossing
General cheque crossing is done with two parallel transverse lines on the cheque with no extra words. It informs the bank that the cheque should not be paid in cash at the counter, but rather deposited into a bank account. It guarantees security where the recipient can access the cash via their bank, resulting in a traceable transaction.
3. Special Cheque Crossing
Special cheque crossing involves marking a cheque with two parallel lines along with the name of a specific bank written between them. Unlike general crossing, special crossing directs payment to be made only through the specified bank, adding an additional security layer. This means that even if someone else presents the cheque, it can only be honored if it is processed through the bank mentioned in the crossing.
4. Restrictive Cheque Crossing
Restrictive cheque crossing limits the negotiability of the cheque. This is generally indicated by words like “A/c Payee” or other instructions written between the parallel lines. The primary role of restrictive crossing is to make sure that the amount specified on the cheque can only be credited to the account of the payee or an authorized endorsee. If a collecting banker fails to comply with this restriction and pays out to someone else, they may be held liable for negligence.
5. Not Negotiable Cheque Crossing
A not negotiable cheque crossing occurs when the words “Not Negotiable” are written between two parallel lines on a cheque. This indicates that while the cheque can still be transferred, it cannot confer better title or rights to any subsequent holder.
Essentially, this means that if someone receives a “not negotiable” crossed cheque, they cannot pass on any superior rights to others, limiting their ability to negotiate or transfer ownership of the cheque effectively.
Related Read: What is a cancelled Cheque?
Conclusion
Account payee checks provide you with a safe way to handle your transactions. Their unique features, such as specifying the payee, ensuring non-transferability, and enhancing security through crossing instructions, play a crucial role in preventing fraud and unauthorized access to funds. Given rising financial risks, using AC payee cheques is a smart choice to protect your funds and ensure secure transactions. By directing payments only to the intended recipient’s account, these cheques enhance security and create a safer environment for financial dealings.
Frequently Asked Questions
1. How to make a cheque as an account payee?
To make a cheque as an account payee, draw two parallel lines on the top left corner. Write “Account Payee” or “A/C Payee Only” between the lines. Ensure the payee’s name and amount are correctly included.
2. How do I encash an account payee cheque?
Note that you cannot directly encash an account payee cheque. It must be deposited into your bank account first. Endorse the back of the cheque and fill out a deposit slip. Submit both at your bank for processing.
3. Can you cash a cheque that says account payee only?
No, you cannot cash a cheque marked “account payee only”, but can only deposit in into the specified payee’s bank account.
4. Can an account payee cheque be encashed by any person?
No, only the named payee can encash an account payee cheque, ensuring a secure transaction.
5. What is the validity of an account payee cheque?
An account payee cheque is valid for three months from the date of issuance.
6. How long does it take for an account payee cheque to clear?
The clearance time for an account payee cheque typically ranges from one to three working days. If deposited in the same bank, it may clear on the same day.
7. What is the limit of account payee cheque?
There is no specific limit on the amount for an account payee cheque. However, the bank may have their own policies regarding large transactions.
