Section 126 of the NI Act says that this is a direction to the bank to not to pay the cheque across the counter. Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting. 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. Have you ever wondered what the term “A/C Payee Only” signifies when you come across it on a cheque? This seemingly small instruction actually carries significant implications for financial security.
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. An account payee cheque is a cheque drawn in favour of a payee’s bank account. When you issue such a cheque, the issuer must deposit it with their bank. The bank then clears the cheque within a few days and the funds are transferred from your account into that of the payee named on the cheque.
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By simply drawing two lines and then adding the word “Account Payee only”, you can create a much safer payment method than traditional cheques. An account payee cheque prevents fraud and unauthorised usage as it is non-transferable, specific, and secure. In addition, it is customisable, allowing you to create different variations, such as special crossed cheques and non-negotiable cheques. Account payee cheques are mainly used where there’s a high risk of misuse. They ensure that funds are deposited directly into a payee’s bank account, minimising the chances of fraud and claims of not receiving payment.
The words “Account Payee Only” or “A/C Payee Only” are written between two parallel lines at the top left corner of the cheque, indicating its restrictive nature. This makes it one of the safest types of cheque available, as it minimizes the chances of the cheque being misused or stolen. This crossed cheque is no more a bearer cheque where anyone can negotiate and get payment across the counter. One can mention ” account payee ” between the two lines on the upper left side of the cheque. One can mention “account payee”, and the words one must write on it are Account Payee or A/C payee.
The verification process also differs from one bank to another. An account payee cheque is a special cheque identified by two diagonal lines on the top left corner with “Account Payee” written. It is a cheque drawn in favour of a payee’s bank account that instructs the bank to transfer funds directly to the named person’s bank account. With their clear instructions and endorsement requirements, these cheques enable individuals and businesses to navigate financial transactions while minimising risks confidently.
Account Payee Cheque Clearance
Next, the bank will process it and credit the funds to your account. Then, fill out the form and deposit it with the representative or drop the cheque in the cheque deposit box. This person or organisation can authorize the bank to pay a specified amount to another party.
Why You Should Keep Your Salary Account & Savings Account Separate
Writing the cheque, indicating the amount, and identifying the recipient are all part of the drawer’s responsibility when issuing the cheque. It means that the following cheque can only be deposited into a bank account where the bank cannot instantly cash the cheque amount. One of the main reasons for choosing cheques as a payment option is because of the security and the simplicity. If you are not aware of what is a payee cheque, read on to know all its key features and benefits.
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You can complete such recommendations by mentioning the endorsee’s name on the cheque and providing your signature on the reverse side of the cheque. When you write an account payee cheque, you are instructing your bank to withdraw funds from your account. The deducted amount is paid out to the recipient’s account upon encashment. But, in certain cases, the banks may have their own limits for certain large transactions. For example, the Reserve Bank of India (RBI) has permitted banks to collect and process account payee cheques for cooperative credit societies up to a maximum limit of Rs. 50,000.
All cheques are bearer cheques unless the word bearer is crossed or another form of crossing is made on the cheque. a/c payee Such cheques can be cashed by the person holding them over the counter. Additionally, these cheques can be quickly given to a third party and don’t need any endorsement. An account payee cheque is issued to eliminate any chances of misappropriation. The fact that the payee is unable to sign these cheques to somebody else adds to the layer of security. But, you need to be careful about one thing–you cannot overwrite anywhere on such cheques.
- Making a cheque A/C Payee is a result of custom, use and practice and is now accepted legally.But, the A/C payee cheque cannot be further endorsed.
- This is a type of cheque in which the bank deposits the amount directly into the payee’s account.
- After you deposit the cheque, the banker completes the process and delivers the amount to the payee.
- Furthermore, there is no requirement of endorsing these cheques, and they may be quickly given to a 3rd party.
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. Understanding the function and process of account payee cheques can add a layer of security to your banking transactions. Account payee cheques ensure that funds reach the intended recipient’s bank account directly, making them a secure mode of fund transfers. If you often handle cheque transactions, being well-versed in the process can help you manage payments safely.
Whether used for unfamiliar transactions or in online marketplaces, account payee cheques provide peace of mind and ensure that payments reach their intended recipients. The primary advantage is its security; since the cheque is addressed to a specific person or entity, it ensures that only the named payee can deposit the funds into their account. The definition of an account payee cheque revolves around its restrictive use. This adds an extra layer of security and ensures that the money reaches the intended recipient.
The drawer is the entity or the account holder who is writing the cheque and signs on the cheque. Generally, the drawer is the individual whose account is debited. If you are new to the world of banking, it is rather usual to come across the term ‘account payee or a/c payee cheque’ and not quite understand what do they actually mean. Having explained the meaning of account payee cheque, let us assess its features.
An account payee cheque is valid for three months from the date of issuance. Submit the endorsed cheque along with the completed deposit slip and your identification to the bank teller. Complete a deposit slip with your account number and the amount of the cheque. In most of the cases, you can deposit a payee cheque in any bank branch. However, you need to write the words ‘Payable at Par’ on the cheque.
- The primary factor for the popularity of drafting an account payee cheque is that this is the safer type of cheque.
- When you issue an account payee cheque, the payee must deposit it in their bank.
- It authorises only one person to withdraw funds and prevents anyone from writing additional details without the drawer’s permission.
- You must write the intended payee’s name, the payment amount (in words and figures), the date of issue, and sign the cheque.
- In this instance, the person receiving money through a cheque has the option of transferring that money to any other account as well.
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. Except if the phrase bearer is cross or there is any other kind of mark, each cheque is just a bearer’s 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.
Therefore, in an account payee cheque, the bank only transfers funds into the payee’s accounts to complete the payment. By following these steps, you ensure that the cheque can only be deposited into the payee’s bank account and cannot be endorsed to another party. Whenever the recipient of a cross cheque has to make a payment, he\she can shift the cheque to his\her creditor. He\she must enter the endorsing guidelines on the reverse of the cross cheque to accomplish this.