Cheques are part of an active financial system, making them a vital instrument for sending and receiving money without physically transferring cash. But, the question is how useful is a cheque, and what is a cross cheque? Simply put, a cheque is a vital document that an individual, an organization, or a government entity can use for the transaction of fluctuating fund values. The cross-cheque system is designed to secure the deposits of Indian citizens. As an outcome, it safeguards you from fraud and theft while letting banks securely hold these funds simultaneously. The blog covers what cross cheque is, its types, how it works, points to consider while using a cross cheque, and why to use it. Keep reading the article to know more!
What is a Cross Cheque?
A cross cheque is mainly a cheque crossed with two parallel lines. The lines can be drawn across the entire cheque or with the left-handed corner on the top. It means that a specific cheque can only be deposited into a bank account, and a banking or credit institution can not instantly cash it. It ensures a security level for the payer because it requires the funds to be taken care of by a collecting banking institution.
In Simple words, a cross cheque is a kind of cheque drawn on the bearer’s banking establishment but carries the affirmation of another banking establishment- it lets a withdrawal from an account be credited to a different banking institution.
In India, the cross-cheque system has become important in the banking sector, letting you effortlessly transfer funds between multiple banks. It checks the sender’s and the receiver’s balance in their accounts and transfers the essential funds.
Reasons to Use a Cross Cheque
The reasons for using a cross cheque are as follows:-
- It gives financial establishments certain instructions on how to tackle cash.
- You can draw two parallel transverse lines across a cheque or at the left side corner on the top and easily identify a cross cheque.
- You can use multiple words like ‘and company’ or ‘not negotiable’ between the lines. The meaning of a cross cheque won’t change by simply drawing a line and without writing anything.
- You can transfer money with a cross cheque between banking establishments or to pay bills.
- You can use cross-cheques as collateral, pay for products and services, or borrow money from a banking institution.
- You can use cross cheques to secure the transferred sum from being cashed by authorized people or stolen. It is also an approach for protection against fraud.
- Since you can pay cross-cheques via a bank account, the transaction record can be tracked later for clarifications and questions.
Types of Cross Cheques
A cross-cheque focuses on the instruction that a particular cheque’s drawer gives to the drawee banking establishment. The cross-cheque must be paid at the bank’s counter with stringent instructions to pay it to the right individual who provides it via a banker. A cheque crossing makes it beneficial to track the individual to whom the sum is paid through a cross-cheque.
The types of cross-cheques in India are as follows:-
General Crossing
General crossing requires two parallel lines. There are no limitations to drawing these lines on the cheque’s specific area, and you can draw them anywhere. However, drawing parallel lines on the top left corner is advisable. You must pay general cross-cheques essentially to a bank.
Account Payee Crossing
Account Payee cross-cheques are also called restrictive crossing. It is a type of cross-cheque that must have the term account payee. Such types of cross-cheques must be crossed generally or specifically. The significance of account payee cross-cheques is that it is non-negotiable.
Special Crossing
The special crossing type of cross-cheque doesn’t require the banker’s name. Only the banker should get the funds from this type of cross-cheque. Remember that a special crossing type of cross-cheque can not be converted into a general crossing type of cross-cheque
Not Negotiable Crossing
Not Negotiable Crossing is a type of cross-cheque where the paper document must have the terms ‘not negotiable’. Furthermore, you can cross the cheque generally or specifically. The cheque remains not negotiable, and the transfer title will not be better than the transferer title.
Points to Consider Before Using a Cross Cheque
Grasp the Tax Implications of Using a Cross Cheque
A cross cheque is regarded as a cash transaction. It implies that you must pay the income tax on the transferred sum and capital gains if a cross cheque leads to a profit. Ensure to grasp the tax implications totally before using a cross cheque.
Ensure that Your Banking Establishment is Adaptable with Cross Cheque
If your bank does not offer the cross-cheque service specifically, your bank may not be compatible with cross-cheques. Ensure to enquire about your bank’s compatibility with the cross-check draft system before signing up for it.
Be Ready to Address Issues that Come with Cross Cheques
Suppose your banking establishment does not accept your cross cheque, or they bounce. In that case, be ready to address the issue. Ensure to have backup plans properly if things do not go as you want.
How Cross Cheques Work?
You should first open a bank account to use a cross-check. You can deposit money into your account and create a cross-cheque. You can use a cross cheque to pay others or withdraw money from your bank account. A cross cheque is less protected than a conventional bank deposit. Hence, guarding them cautiously is necessary. Suppose a cross-cheque is misplaced, lost or stolen. In that case, finding a replacement is challenging. You should know the risks while making payments through a cross-cheque, which includes the risk of fraud.
Conclusion
So, what is a cross cheque? A cross cheque is a financial term commonly referring to an arrangement between multiple parties in which one party deposits money in someone else’s bank account and pays the other a sum. It is essentially a paper cheque allowing you to transfer money from one account to another without paying interest on those funds. It is tremendously helpful for business organizations because it lets them move money between multiple accounts without worrying about getting short of cash or bouncing cheques. You can use a cross cheque for various purposes, including business transactions and personal finances.