A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the Maker, usually has a chequing account (a "demand account") where their money is deposited. The maker writes the amount, date, and a payee on the cheque, and signs it, ordering their bank to pay this person or company the amount of money.
Originally, there was no bank involved, and the payee had to track down the maker, in person, in order to get paid. The purpose of the bank was to increase the credibility of the cheque; then, the payee need only find the bank it was drawn on. Modern banks are linked electronically so that any cheque is good at any bank, at least in the same country.
Paper money evolved from cheques, being a written order to pay the given amount to whoever had it in their possession (the "bearer").
Technically, a cheque is a negotiable instrument[nb 1] 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.
The most common spellings of the word (in all its senses) were check, checque, and cheque from the 1600s until the 1900s.[1] Since the 1800s, the spelling cheque (from the French word chèque) is standard for the financial sense of the word in the Commonwealth and Ireland, while only check is retained in its other senses, thus distinguishing the two definitions in writing.[nb 2]
In American English, the usual spelling of the word is "check".[3]
The cheque had its origins in the ancient 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 and services. A draft is a bill of exchange which is not payable on demand of the payee. (However, draft in the U.S. Uniform Commercial Code today means any bill of exchange, whether payable on demand or at a later date; if payable on demand it is a "demand draft", or if drawn on a financial institution, a cheque.)
The ancient Romans are believed[4] 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 Harun al-Rashid (9th century). In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad,[5] 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.[6] 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 Geneva Convention on the unification of the law relating to cheques simplified the international use of cheques [7]. Most European and South American states and Japan joined the convention, but not the United States and the members of Commonwealth (all the members of the common law).
Circulating currencies
Community currencies
Cheques generally contain:
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[citation needed]. In Australia, for example, it is fifteen months.[9] In the United States and Canada, it is six months[10].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 USA, at the top (when cheque oriented vertically) of the reverse side of the cheque, there are usually one or more blank lines labelled something like "Endorse here".
In the United States, cheques (spelled "checks") are governed by Article 3 of the Uniform Commercial Code.