A cheque is an authorization to draw funds from a bank account. In order to do this, a cheque must state the name of the payee, the amount to be paid, and the date. A cheque is one of the more common forms of payment used, though its usage has declined as various types of electronic payment have gained in popularity.

A cheque is typically written to authorize payment to a specific entity, known as the payee. However a cheque can also be written to cash, which means that payment will be made by the bank to whomever presents the cheque. The routing of a cheque is as follows:

  1. From the payer to the payee.

  2. From the payee to the bank of the payee.

  3. From the bank of the payee to the bank of the payer.

  4. The bank of the payer sends funds to the bank of the payee.

  5. The bank of the payee makes the funds available to the payee.

A cheque is usually negotiable, so that the payee can assign it to another person by endorsing it. The person to whom the cheque is assigned becomes the new payee.

A cheque may contain a number of integrated security features that make it more difficult for a forger to alter the information already stated on the document.

Similar Terms

Another term for a cheque is a check.

Related Courses

Corporate Cash Management 
Payables Management