The importance of the goods and services depends more on value exchange than money. Payments may be made in several negotiable ways.
Cheques and bills of exchange are two such instruments for making payments. Let's check out the significant distinctions between the two.
A cheque is a written instruction to your bank to withdraw a specified amount from your account, delivered on specially printed paper. The payee whose name is on the cheque will get the amount you specify in the memo line.
So, if you've written a cheque to someone, the bank will send them the specified amount. It is a monetary asset that is negotiable. The cheque is negotiable if there is no indication to the contrary on it.
It indicates that the cheque can be transferred to a person whose name is not listed on the document. Additionally, a different third party may receive it.
The various types of cheques are listed below -
The name of the person can be used to encash a bearer cheque. It says "or bearer," which implies either the person whose name is on the cheque can cash it or the person acting as the cheque's representative.
Thus, whoever is the bearer, holder, or presenter of the cheque may receive the sum of money specified thereon.
An order cheque is given to an individual or organisation. Only the individual or company whose name is on the cheque - either personally or the corporate will get the money.
The payee may transfer it to another party in this situation. It becomes negotiable only after being endorsed and given to a third party.
This cheque may also be used to make a cash payment or to transfer funds into the account of the payee of another person.
As a result, it can be a bearer cheque or an order cheque because it is negotiable. Following endorsement, the payee may transfer the funds to a different party.
If the cheque is blank, you can just sign it without specifying the amount. The name of the payee may or may not be mentioned.
A blank cheque effectively means that you are not filling in the amount; instead, the recipient may fill it in as he sees fit.
When transferring money at a future date, a post-dated cheque is used. You can use a post-dated cheque to pay your rent or loan if your account balance is insufficient as of today's date and your paycheque won't arrive for another week.
When you wish to take money out of your account, use a self-cheque. All you need to do is put down the date and the sum of money you want to withdraw before collecting your money.
A cheque that a bank has issued, either on its own or on behalf of a client. It is not negotiable and won't bounce because of insufficient cash. It has a three-month validity.
The order to pay is known as a bill of exchange. A cheque serves as its exemplar. A draught or a bill of exchange often involves three parties, who are as follows:
the person who orders payment by drawer
the ordered payer drawee
a person who is being paid, or the payee
A bill of exchange is described as an unconditional order in writing directed to another, signed by the person delivering it, compelling the person to whom it is addressed to pay a specified amount of money to order or to bearer on demand, or at a predetermined or determinable future date.
Bills of Exchange are usually classified according to the class of drawee or the length of time before payment is due.
When the payment is drawn on a bank, it is a bank draft. Whereas, if the payment is drawn on a person or an institution, it is a trade draft. A cheque is a sight bank draft. It is not an obligation of the drawer to pay.
Hence, individuals receiving payment through a draft only have the creditworthiness of the drawer as assurance that payment will be made.
For instance, when you write a cheque on your deposit account, your bank is not obligated to make payment unless there are sufficient funds in the account.
Drafts are either payable on presentation i.e. sight draft or payable at some determinable future date i.e. time drafts.
In the case of a time draft, the draft becomes an acceptance if the drawer agrees to make payment (by writing the word “Accepted” on the draft and signing it with a date of the acceptance).
Acceptance is widely used in trade and finance at both domestic and international levels.
The major differences between a cheque and a bill of exchange are mentioned below -
| Criteria | Cheque | Bill of Exchange |
|---|---|---|
|
Drawer |
A cheque is usually obtained from or paid to a bank or banker. |
A banker is not an exception when drawing on a bill of exchange. |
|
Acceptance |
The acceptance of a cheque is not necessary. |
The drawer cannot be held accountable for a bill until it is accepted. |
|
Payment |
A cheque has no grace period and must be paid in full upon demand. |
Unless it is payable on demand, a bill of exchange usually has a grace period of three days. |
|
Crossing |
You could cross a cheque. |
In the case of a bill of exchange, there is no such clause. |
|
Liability |
If the bearer of a cheque takes too long to present it for payment, the drawer is not released from liability unless the drawer has suffered harm as a result of the delay. |
If a bill is not properly presented for payment, the drawer is relieved of the responsibility. |
|
Notice of Dishonor |
There is no need to file a notice of dishonour when a cheque is not honoured. |
To hold the drawer of a bill accountable, a notice of dishonour is required. |
|
Stamp |
No stamp is necessary for a cheque. |
It is necessary to stamp a bill of exchange. |
|
Countermanding payment |
By countermanding payment, a cheque can be voided. |
It is impossible to reverse a bill payment. |
|
Protection |
When it comes to the payment of cheques, a banker is afforded statutory protection. |
The drawer or acceptor of a bill of exchange has no such protection accessible to them. |
|
Payable to the Bearer on Demand |
A cheque can be written payable to the bearer. It is acceptable to draw a cheque that is "payable to bearer on demand". |
A bill of exchange cannot be drawn. Though a bill might be made due to the bearer after a set amount of time, a bill drawn "payable to bearer on demand" is worthless and unlawful. |
Negotiable instruments refer to things that can be transferred. It is a piece of writing that grants anyone a right.
Therefore, a negotiable instrument, such as a cheque or bill of exchange, is a written document that creates a right in favour of any person and that is transferable by delivery.
The six-digit cheque number can be found at the bottom of the cheque.
To write a cheque, you must specify the date and indicate who the cheque is for by writing their name. You are also required to mention the amount to be paid and make a memo. Finally, you must put your signature on it.
It is a document that the bank issues to pay a sum of money to the individual whose name is written on the cheque.
A bill of exchange is essentially a written order that asks the recipient to send money to a named or signature payee.
An exporter, or seller, gives a bill of exchange to the buyer, or importer, who must sign the bill for it to be valid.
A bill of exchange is used to pay off debts or to compel supply payments before obtaining ownership of the items. It can also be used to transfer or deposit payments from one individual to another.
Receiving goods or services that will be paid for later requires the use of a bill of exchange. A cheque, on the other hand, is used to make immediate payments for goods and services.
The debtor must pay the specified amount of money within the specified amount of time, according to a bill of exchange issued by the creditor.
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