Types of Bills of Exchange
Once the bill is accepted, the payee who may be the drawer himself, can do any of the following with it.
He may keep it until maturity.
He may discount it with his bank or bill broker,
He may use it to pay his debt by endorsement and delivery.
He may use it as security for a loan,
(b) Cheques
X Y |
Parties to a cheque
The following are the parties to the above cheque:
T. Wanda, the drawer
Victoria Commercial Bank, the Drawee.
Opio, the Payee
Features of a cheque: The part marked 'X' is called a cheque stub or cheque folio. It is used for reference and for up-dating the cash book. The part marked ‘Y' is called a cheque leaf or cheque and is issued to the person to be paid, in the above example to Opio.
Advantages of Cheques: Cheques can be drawn for any sum and therefore obviate the need for change. They are light and safer to move with. If crossed must be paid through an account. This gives them further protection.
Disadvantages: They are not Legal Tender. Their circulation is therefore not enforced by government. A cheque may not be accepted when given in payment to a person who does not know the Drawer.
Types of a cheques;
Open Cheques: Open cheques are those payable across the counter or cashed across the counter. They are not crossed so they do not need to go through the payee's account. There are two types of open cheques namely Order cheques and Bearer cheques.
Order Cheque: This is a cheque wherein a payee is named. An order cheque is made payable to a specified person or his order. Such cheques are passed to other parties by endorsement and delivery.
A Bearer Cheque: This is a cheque wherein no payee is named. It is one which is expressed 'pay .... or bearer'. It can be presented by anyone for payment and does not require endorsement. If this cheque gets lost, there is a danger that anybody who finds it may present it to the bank for payment.
Crossed Cheques: A crossed cheque is a cheque that bears two parallel lines, called Crossings, across its face. Such a cheque cannot be cashed across the counter. Payment must be made through the payee's account.
Types of crossings
General Crossing: A general crossing or a general crossed cheque consists of two parallel lines with or without the words. General crossings may take one of the following forms:
(a) Just two parallel lines, with no words between them
(b) Two parallel lines with words ‘& Co.' between them. These words, however, do not have any significance. A crossed cheque with or without the words ‘& Co.' is different from an order cheque only in the respect that whereas an order cheque can be cashed across the counter, such a crossed cheque must be presented through a bank account.
(c) Two parallel lines (with or without the words ‘& Co.') with the words ‘not negotiable' between them. These words signify that though a payee named on the cheque can transfer the right to receive money against the cheque, the new payee will not have a better title to the cheque than the original payee himself had.
(d) Two parallel lines with words ‘Account Payee Only' between them. This is one of the safer methods of payment. These words are an instruction to the bank that the payment against the cheque should be made only if it is presented for collection through the bank account of the payee named on the cheque. This cheque cannot be endorsed or negotiated.
General
Crossings
Special Crossing: A special crossed cheque in addition to the above indicates the name of the paying banker.
Dishonoured Cheques:
These are cheques which the bank has refused to pay for any of the following reasons:-
The drawer may not have enough money in his account.
The drawer's signature may be forged or different from the specimen signature.
The amount might have been altered
The amount in figures may be different from that in words.
Payment might have been stopped by the drawer.
The drawer may be dead or bankrupt.
The cheque might be stale.
The cheque might be mutilated.
The account might be closed.
The cheque might be post dated,
4. Stale Cheques:- A stale cheque is one which is more than six months old and banks will usually dishonour such cheques.
5. Post-Dated Cheques:- These are cheques bearing dates ahead of the current date. Thus if the date to-day is 1st July, 1992 a cheque dated 10th July, 1992 is a post-dated cheque.