A cheque is an instruction of the drawer to the bank to pay a designated sum to the payee or bearer. In Hong Kong, only current account users are entitled to use cheques, which are usually free of charge. However, in Hong Kong, a current account normally does not generate any interest.
An overdraft is a sum in excess of the balance of a customer’s account, and is granted only upon approval by the bank. A bank will grant a customer overdraft service based on his or her credit status. Such a service is offered subject to payment of interest.
The main features of a cheque
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Date: A cheque is valid for six months from the date specified on the cheque. |
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Drawer: The drawer is the one who writes a cheque giving payment instructions to the bank. |
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Payee: The payee is the one who receives payment through the cheque. |
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Amount in words: The amount paid out written in words. |
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Amount in figures: The amount to be paid out in figures must tally with that in words. |
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Signature: The drawer must sign the cheque to authorise the bank to deduct the designated amount from his or her account. Any change to the cheque must be countersigned. |
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Date of cheque
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| Care must be exercised when writing the date of a cheque because it will affect the validity of the cheque. A cheque six months past its specified date is called a “stale cheque”. A cheque carrying a date in the future is called a “post-dated cheque”. |
The main reasons why a cheque is not payable (bounced cheque)
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In case of insufficient funds in the drawer’s account, the bank would return the cheque with the instruction “Refer to drawer”. Following are some of the common causes: |
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The cheque is out of date. |
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The cheque is post-dated. |
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The drawer’s account is cancelled. |
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Changes must be countersigned by the drawer. |
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The drawer has requested the bank to stop payment. |
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Points to note when using a cheque and the common security measures
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| Two distinct features of a cheque: |
| 1.“Or bearer” – The words “or bearer” appear next to the payee’s name on the cheque. If the words are not crossed out, any holder of the cheque can cash it. |
| 2. Crossed – If a cheque is crossed on the top left-hand corner with two parallel lines, then it cannot be cashed and must be deposited in the payee’s account. |
| It is common practice for the drawer to cross out the words “or bearer” and cross the cheque when writing a cheque to an institution, so that the cheque can only be in the possession of the institution. Making good use of these two features of a cheque is an effective security measure against unauthorised use of a cheque and possible loss. |
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