The internet has altered the way things used to be done all around the globe. It has also helped bring the financial industry into the contemporary era. Customers may do banking-related tasks like money transfers, cash withdrawals, and more from their homes, thanks to the conveniences offered by online banking. This has led to a significant decline in the usage of cheque books and other manual processes that were formerly fundamental to banking services.
Having said that, you need to be aware of the significance of a cancelled cheque and the circumstances in which having a cancelled cheque might be helpful.
What is a cancelled cheque?
Source: Pinterest
A cheque with two parallel lines across the layout is called a cancelled cheque. Between these lines, you also need to write the word “cancelled.” There is no need to sign the cancelled cheques. The cancelled cheque can be used to find information like the account number, the account owner’s name, the MICR code, the name and location of the bank branch, and the IFSC.
Generally, a cheque involves two parties. These consist of the drawer as well as the drawee. The individual who writes the check is called the drawer, and the person on whom the cheque is drawn is called the drawee. There may also be a payee who is responsible for paying the cheque’s stated amount.
When would you need a cancelled cheque?
To complete any of the following financial dealings, you will need a cancelled cheque:
KYC Completion
Know your customer, or KYC is a term you’re undoubtedly familiar with. Know Your Customer, or KYC refers to the documentation process required by financial organisations to ensure their customers are acting lawfully while handling money. Since the cancelled check verifies your identity as a bank account owner and serves as proof of your banking credentials, it is required when purchasing stocks, mutual funds, or other investments tied to the stock market. Banks and other financial institutions require this document to prove an individual’s identity, account information, and branch location.
Electronic Clearance Services
With ESC, you may electronically settle account balances and do other financial transactions without needing paper documents. This is a method wherein a business or investment company automatically deducts a predetermined amount from your savings account on a regular schedule (monthly, quarterly, semiannually, or annually). You might have set up ECS to pay monthly electricity, water, and internet bills. When you wish to have money withdrawn from your bank account automatically by the supplier or brokerage firm, they may ask for a cancelled cheque. This will offer the relevant data to the provider or investing business, who may then input it into the ECS system to facilitate automated withdrawals at the appropriate times.
EMI
We often use credit to buy things and then pay for them in manageable chunks over time. Alternative monthly payment options (EMIs) are available for many types of loans. Banks and businesses need a cancelled cheque to finalise the paperwork involved with allocating recurring monthly payment choices.
Demat account
A Demat account is used to store shares in a digital form. You cannot, however, simply walk into a financial institution and seek such an account. You will be asked to submit a form along with your identity and evidence of address. In addition, a cancelled cheque is required. This will be submitted to a stock trading firm along with further supporting papers. The corporation will use the data on the check to set up automatic debiting and crediting on the Demat account. Your savings account will be linked to your Demat account, and all transactions between the accounts will be conducted electronically.
EPF withdrawal
A completely filled-out form and a cancelled cheque are needed to withdraw funds from your EPF account after it has matured or before its scheduled withdrawal date. EPFO, which stands for Employees Provident Fund Organization, will use the account details provided on the cheque to deposit the funds into your account.
Bank Account opening
You’ll need to provide a cancelled cheque as part of the required documentation when creating a bank account. This might be necessary for a current account or a savings account.
Insurance Policy
We are all familiar with the concept of insurance and its potential applications. A cancelled cheque is required for purchasing insurance policies like health, life, or money back. A certain amount will be taken out of your bank account monthly to pay for the insurance. Certain insurance providers ask for a cancelled cheque as part of the buying process.
Dispatch of loans
Personal loans can be employed for everything from furthering one’s education to financing a wedding or a home purchase. There currently needs to be a commercial lender that will accept cash for loans. Money borrowed via a loan is sent electronically into your bank account. For this reason, they will require a cancelled cheque so that they may electronically deposit the amount into your account.
How to write a cancelled cheque?
You may write a cancelled cheque yourself to submit with your applications. To create a cancelled cheque, simply stick to the simple steps below:
- Grab a new cheque from your chequebook. There is no need for your signature anywhere on the cheque.
- Use a blue or black pen to draw two crossed lines across the check in a parallel fashion. The lines must link the two ends. Leave enough space between the two lines for writing.
- Write the capital letters “CANCELLED” between those lines. It is OK to use lowercase letters as well.
- Cancelled cheques should not be signed. Your signature may be requested if a financial institution or other entity makes such a formal request. It’s best to check with a bank’s higher-ups to be sure you need to sign anything. If you are concerned about the legitimacy of your cancelled cheque’s signature request, you have the right to demand an explanation in writing.
The use of a cancelled cheque may lead to several fraudulent activities due to the abundance of information it carries, which includes the following items in particular:
- Account number
- Account holder Name
- IFSC Code
- MICR Code
- Bank’s name
- Bank branch
One or more forms of fraud may be possible with this data. Once you put your signature on anything, a fraudster may easily make a copy and use it to their advantage. Therefore, signing your cancelled cheque and then mailing it is risky. If you are asked to sign the cancelled cheque, you may always request a statement or declaration from your bank.
What are the functions of various cancelled cheques?
Some may assume that cancelling a cheque is a straightforward process, and in some ways, it is, but many important actions must be taken. If you give out a cancelled cheque without taking these precautions, the recipient will have access to all of your bank’s funds.
Cancel a cheque
If you wish to cancel a cheque, you must always draw two parallel lines across it and write “Cancelled” between the lines.
Colour of pen to use
Remember that you can only use a Blue or Black Pen to cancel a cheque since many individuals may become confused about which colour to use.
- You cannot cancel the same cheque using both a Blue Pen and a Black Pen; doing so will result in its rejection.
- You cannot cancel the check using a Green, Red, or another colour pen, or it will be refused.
What are the risk involved in cancelling a cheque?
People still worry that some kind of security risk is associated with submitting a cancelled cheque. Cheques cannot be used to withdraw funds if they have been legally cancelled, so there’s no need to worry about that.
Sign on cancelled cheque
Normal cheques are signed by the payee and presented to the recipient or organisation. On the other hand, cancelled cheques do not need your signature.
Draw only two lines
It’s possible that in a moment of haste, a borrower will merely draw two parallel lines across a cheque to indicate that it has been cancelled, but bear in mind that this will not be sufficient for the purposes of the loan or EMI process unless the words “cancelled cheque” are also written on the cheque.
Can I cancel the cheque using red ink?
One must use a black or a blue pen to cancel or write a cheque, as using pens of other colours is not accepted by the banks, NBFC and others, and may result in rejection.
Can I block a cheque leaf online?
One can block a cheque by contacting their bank and submitting a request. Alternatively, one can visit the bank’s official website. One should note the cheque details, including the cheque number.
Parties involved in processing a cheque
Three parties are involved in the processing a cheque-
- The drawer hold the bank account and issues the cheque
- The drawee is the financial institution
- The payee is the person whose name is written on the cheque and will get the money.
FAQs
How do you cancel a cheque?
What are some occasions when cancelled cheques are necessary?
For several processes, such as Know Your Customer (KYC), the EMI process, Electronic Clearing Service (ECS), selecting an insurance policy, creating a Demat account, withdrawing from a personal retirement account, and opening a bank account, a cancelled cheque is required.
Will my bank invalidate my cheques if I request them?
No bank can cancel your cheque, but they may provide you with a new cheque leaf so you can choose a new one and cancel the old one if necessary.
Should my signature appear on a cancelled check?
To prevent any misuse, you should never sign a cancelled cheque. You are under no obligation to present a signed and cancelled cheque.
What are the potential risks associated with cheque cancellation?
A cancelled cheque creates a security risk since it contains sensitive information about your bank accounts, such as your IFSC code, account number, branch location, MICR code, and more. However, cancelling a check poses no danger.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
