Let’s understand how cheques work. A cheque is a promise made in writing by one person to another to unconditionally pay a specified amount of money. However, you can also write a cheque to yourself.
For example, if Amit owes Asha Rs. 10,000, he can give Asha a cheque of Rs. 10,000. When Asha presents this cheque to the bank, she will receive Rs. 10,000 as cash or in her bank account. Rs. 10,000 will be deducted from Amit’s account.
In technical terms, as used by bankers and lawyers, a cheque is also referred to as and is a type of a ‘Negotiable Instrument’.
The different parties involved in dealing with a cheque are:
- The issuer of the cheque (Drawer)
- The payee/holder of the cheque and
- The bank (Drawee)