Check (or cheque in British English) — an official record that states an obligation to a bank to pay a certain sum of money to the holder of the check. It’s required that a check must be written, dated and signed according to the rules.
A process of writing and using the check involve the following participants:
- a drawer (or a payor) — the one who writes a check, it might be an individual or an organization;
- a payee - the one to whom the check addressed to, an individual or an organization as well;
- a drawee - the bank, or other financial institution, or any other company that provides money transfers, that must perform the transaction.
Drawing a check is a method of ordering a bank to transfer a stated sum of money from the payor’s account to the payee’s one. Checking accounts are usually used in these type of operations, though other types of accounts are also possible to use.
Process of using a check
Checks have become popular because it eliminates the need to use physical cash that is especially convenient when operating large sums of money. A check serves as a replacement for a sum of currency stated in it. As the transactions are done directly from an account to an account under the control of one or more banks, this type of operation is considered to be safer and more reliable than exchanging cash from hand to hand. That level of security is provided not only by the fact of control and documentation, but also by the impossibility to anyone but the payee to negotiate the check to obtain the money.
The procedure of writing and using a check is the following:
A payor draws (or drafts) a check - it must be written and filled in with all the appropriate information, and gives it to a payee, who, in turn, presents it to the bank (a drawee) where the check is processed. Typically, the check is negotiated for cash or deposited into an account. After processing and successful transferring of the sum stated in the check to the right account, the check must be marked in a special way, usually with a ‘paid’ stamp or a stamp stating and verifying similar information. After that, the check is cleared and is put into an account owner’s file.
If there aren’t sufficient funds in the drawer’s account and the payment cannot be fulfilled, the check bounces (which means that it cannot be negotiated). In this case, a penalty fee is usually applied to the writer, and sometimes to the payee as well.
The necessity of secure money transactions has appeared a long time ago. Financial instruments similar to modern checks might be found in different periods of human history, including ancient Rome, the Maurya Empire in India, the Sasanian Empire and some others.
The first checks designed in a way that resembles modern checks appeared in the 18th century in Great Britain and the United States.
As the economy of the world evolved, checks became a widespread method for transactions, especially in the middle of the 20th century after the automatization of the process. In the second half of the 20th century, checks were the most common non-cash way of payments, and a system of organizing and using checks has become a predecessor of modern system the work of debit cards is organized.
Nowadays, the use of checks has been partly replaced by non-cash transactions made by credit and debit cards, though checks are still popular.
Different kinds of checks for different purposes
There are several types of checks worth closely studying:
A cashier’s check is a type of check drafted by a bank or another financial organization, the peculiarity of which is that when a client requires it from a bank, the sum of money is taken from the client’s account and moved into the bank’s account, after which a check for this sum is written by the bank, signed by a bank representative and presented to any party the client wants to pay. It guarantees that the payment will be made, and the funds are available for it, so the check won’t bounce.
A certified check is one more way to guarantee the payment and prevent the check from bouncing. When writing a certified check, the bank provides information that there is a satisfactory sum of money in the drawer’s account to be paid off as stated in the check (this verification is usually called an acceptance and is placed on the face of the check), and this sum is preserved until the check is cleared or returned.
A payroll’s check, also called a payroll check, is used by employers to provide employees with wages and salaries. Nowadays, the use of payroll checks has significantly declined.
A traveler’s check is also getting less popular nowadays, though it used to be extremely widespread not long ago. This type of checks represents an amount of money prepaid to an issuer in a form of check that might be used for a person signed it for purchases, or it might be exchanged for cash.
Attributes of a check
As it was stated above, checks might be different and require different elements to be used properly. Though, there are several key attributes that might be found in any type of check.
These attributes are the following:
- the name and contact information of the payor;
- the name of the bank holding the writer’s account;
- the date;
- the payee’s name preceded by the phrase "Pay to the Order Of";
- the sum of money needed to be paid in numerals with a specified currency;
- the sum of money written in words;
- the payor’s signature;
- a memo line for any kind of specific information needed for the check;
- a list of codes indicating the numbers of the check itself, the payor’s account and other important information.
Part of this information is usually printed in the check, other parts must be filled in by the payor, such as the date, the name of the payee, the sum of money in numbers and in words, and the signature.
The back of the check usually has a space for the payee’s signature, which is required when the check is negotiated. The back is also used to place stamps there when clearing the check.