Cheque

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Example of a Canadian cheque.

Example of a U.S. dollar cheque issued by a Canadian bank. If the bank account was in CAD, USD would have to be added to the cheque to make it be valued in USD.

Sample for a fictional cheque in the United Kingdom. The cheque is crossed (with ACCOUNT PAYEE written vertically in the middle of the cheque), which means that it can only be paid into a bank account, not to cash. Cheques issued in other Commonwealth countries are similar.

Example of a South Korean cheque, where the payee and signature are on the reverse side

A cheque drawn on the Regent Street (Clifton), Bristol branch of Westminster Bank, England dated 14 August 1956. Notice (a) the bank clerk's red mark verifying the signature, (b) the two-pence stamp duty, (c) this is a "Crossed cheque" disallowing transfer of payment to another account, (d) holes punched by hand through the cheque by the bank, and (e) there are no magnetic-ink characters for computer sorting — banks did not have computers in 1956 and had staff sort millions of cheques daily by hand.

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.

Etymology and spelling

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]

History

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 of 1931

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).

Parts of a cheque

Circulating currencies
Community currencies

Fictional currencies

Modern currencies

Notaphily

Scripophily

Cheques generally contain:

1. place of issue
2. cheque number
3. date of issue
4. payee
5. amount of currency
6. signature of the drawer
7. routing / account number in MICR format. In the U.S., the routing transit number is a nine-digit number in which the first 4 digits identifies the U.S. Federal Reserve Bank's cheque-processing center. This is followed by digits 5 through 8, identifying the specific bank served by that cheque-processing center. Digit 9 is a verification check digit, computed using a complex algorithm of the previous 8 digits.[8]
   • Typically the routing number is followed by a group 8 or 9 MICR digits that indicates the particular account number at that bank. The account number is assigned independently by the various banks.
   • Typically the account number is followed by a group of 3 or 4 MICR digits that indicates a particular cheque number from that account.
8. fractional routing number (U.S. only) - also known as the transit number, consists of a denominator mirroring the first 4 digits of the routing number. And a hyphenated numerator, also known as the ABA number, in which the first part is a city code (1-49), if the account is in one of 49 specific cities, or a state code (50-99) if it is not in one of those specific cities; the second part of the hyphenated numerator mirrors the 5th through 8th digits of the routing number with leading zeros removed.[8]

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".

Types of cheques

North America

United States

In the United States, cheques (spelled "checks") are governed by Article 3 of the Uniform Commercial Code.