Ohla holds a degree in Information Technology and also a Master in Business Administration. She loves traveling & share her best tips.
What Is a Cheque?
Cheques are a banking instrument that is in decline, but they are still used in some countries worldwide. It's in use in some of the big economies like the USA, and it's a major payment instrument in Sri Lanka, especially with the business community. But it is surprising to see that most of the people I've spoken to have only very basic knowledge about cheques. Hence, I thought of writing this for those interested to know about Sri Lanka bank cheques and their practices and regulations.
A cheque is a pre-printed piece of paper with a specific standard layout. Cheques are used as a payment instrument in place of cash and can be written/drawn for any amount the cheque issuer wishes.
You Need a Cheque Account
If you want to issue cheques, you must first open a cheque account with your bank. If you are an individual who wants to open a personal cheque account in Sri Lanka, then banks require you to find another individual who already has a cheque account in the bank as an introducer. This is a strange rule, but it is what it is.
An introducer is not needed to open a business cheque account. Cheque accounts do not pay any interest on the balance like savings accounts do, and cheque accounts have a minimum daily balance of around Rs.10,000/- for personal accounts and around Rs.20,000/- for business accounts that you need to maintain. You can usually obtain a debit card or an ATM card against the cheque account. The cheque account has limits, and what other facilities allow depends on the bank you choose.
How to Deposit Money to a Cheque Account
You can deposit money to a cheque account just like you do to any other account, such as a savings account. Usually, you must fill out a deposit slip and then hand over the money to a teller with the slip. More details on this will be provided later.
Withdrawing money from a cheque account: Unlike other accounts where you fill a withdrawal slip to take money out of a cheque account, you need to write/draw a “cash” check with the amount you need to withdraw and give to the bank teller. I’ve explained below how to draw a “Cash” check. But since cheque leaves are expensive, I’d recommend you to get a debit/ATM card and use the card to withdraw money from an ATM instead of wasting a cheque leaf.
Banks issue blank/new cheques in books that contain a number of cheque leaves. You must open a cheque account with a bank to obtain a chequebook. Since a cheque leaf contains security features and is printed on special paper, it is quite expensive.
As of today, a single leaf is priced around Rs.15/-. It is up to you to decide how many cheque leaves you want to buy when you order a new chequebook from your bank. How many cheque leaves you want depends on how often you issue cheques. A chequebook must be ordered in the bank branch where you maintain your cheque account.
Components of a Cheque
- Cheque Date: Cheques are drawn with a specified date. The date can be any date you want and need not be the date you are actually writing the cheque. But a cheque has a validity period from the date indicated on the cheque. A personal cheque is valid for six months, while a corporate/business cheque is valid for only three months. Further, some business cheques are issued with specific validity periods of less than three months. For example, dividend payments are usually issued with a one-month validity period. The date on a cheque is important because the cheque recipient can cash a cheque on or after the cheque date and within the validity period. Encashing a cheque or encashment is the term used to convert a cheque into real cash by either taking money over the country of the bank or depositing the cheque in the recipient’s account.
- Payee: The payee section is used to write the name of the person or company who is supposed to encash the cheque. The Payee section has a pre-printed statement that says “Or Bearer”. If you leave this section blank, then any person can encash the cheque over the counter of a bank than the person’s name that appear on the cheque. But if it is a business cheque, the banks restrict it to be encashed only by the person whose name appears on the payee section. You can write the word “Cash” as the payee instead of a person or business name as well. This means that the cheque is meant to be used just like cash. Any person who holds the cheque can encash it from a bank branch over the counter. Further, you can give a cash cheque you received from someone to another party as well as a mode of payment. For instance, say you received a Rs.5,000/- “Cash” cheque from Mr. Perera, and then you also have to pay Rs.5,000/- to Mrs. Silver; you can simply hand over the cheque you received from Mr. Perera to Mrs. Silva. Therefore as you can guess issuing “Cash” cheques are risky since if someone stole such a cheque or payee lose the cheque, anyone could encash it.
- Amount in words: You must write the amount of the cheque in words on the dotted lines provided. You can use Sinhala, Tamil or English, but it is preferred you write it in a language understood by any bank branch. Remember to use the word “Only.” at the end of the amount in words so that no one can tamper or alter the amount later. I usually include a short horizontal line after the word “Only.” as well just to make it even safer. Computer-printed cheques sometimes put two asterisks (*) at the end too to denote the end of the wording.
- Amount in numerics: You must write the amount in numerical form within the box. The amount you write here must be the same amount you wrote in words. Else the cheque will be rejected by the bank.
- Authorized signatory: When you open a cheque account, you provide a sample signature to the bank. You must place the same signature in this area to make the cheque valid. This area is just under the box where you wrote the amount in numbers. A cheque without a correct signature is an invalid cheque even if all other sections are properly filled. Join cheque accounts may have one or more joint account holders that need to sign a cheque. You indicate at the account opening how many signatures a cheque needs to have to make the cheque valid. Usually, it is one signature or two signatures. Having multiple signatories on a cheque to be valid is common practice for business cheques and is used as a form of preventing fraud since two parties will verify the cheque before signing. Such a cheque usually carries a company stamp as well.
- Machine-readable area: All cheques have a white horizontal area at the bottom of the cheque. It is printed with numbers and special characters using a special ink called magnetic ink and with a special font. This is a machine-readable area, and you must not damage this section of a cheque. This is why the cheques are folded parallel to the longer sites than shorter sites. It prevents any folding over this machine-readable area. Banks feed the cheque they receive to cheque scanners, and this area is read by the machine. The characters printed in this area are called magnetic ink characters. Therefore, the cheque scanners are called MICR or Magnetic Ink Character Readers. In Sri Lanka, this area contains the 6-digit cheque number (enclosed between special characters), then the 4-digit bank number, followed by the three-digit branch code and finally your account number. In some countries like the USA, this area will include additional data such as routing numbers and clearance numbers as well.
How to Issue a Valid Cheque
In order to issue a valid cheque, you must fill all the sections properly without any corrections. The date must be a date that won’t make the cheque invalid, and the handwriting must be clear. The signature must match the sample signature given to the bank at the account opening. If you make mistakes while writing, you must place the signature close to each place you have done a correction.
You will find a small piece of paper extra in each cheque leaf attached to every chequebook. When you detach a cheque leaf, this small piece is left with the chequebook. This is to write the information you put in the cheque for your reference. This piece of paper will have pre-printed sections for cheque date, payee, amount and even the balance in the account after the cheque is issued. It is a good practice to fill this section because a cheque is valid for six months, and you may forget what cheque is issued to whom over time.
Sometimes cheques are issued with a future date. Such cheques are known as forward-dated cheque. When the cheque date is a future date, you cannot deposit or encash the cheque until the date arrives. This is common practice for business cheques where businesses purchase items on credit.
So when businesses purchase items on, say, 30-day credit, the buying party issues a cheque to the selling party with a date that is 30 days in the future. Hence the seller received the payment, but the seller can only convert this into cash after 30 days. By doing so, the buyer can make sure he finds enough money to honour/satisfy the cheque he just issued within the next 30 days.
Crossing a Cheque
A crossed cheque is a cheque that is payable only through a collecting banker and not directly at the counter of the bank. The simplest form of crossing is to draw two short parallel lines on a cheque, usually around the top left area, without obstructing the information on a cheque.
You can use a seal or print crossing on the cheque as well. Crossing instruct to the receiver of the cheque that the cheque must be deposited in an account and cannot be encashed over the counter. This also means that there is a conflict of crossing while using the word “Cash” as the payee. You must not cross a cash cheque because the two practices are in conflict with each other. You can write restrictive instructions between the two lines.
If the instructions “Account Payee Only” is indicated between the crossed lines, then the cheque must be deposited in an account that matches the name written on the cheque as the payee. If the crossing carries a name of a bank as instructions, then it is to be collected through the bank name that appears between the crossed lines. If the crossing does not carry instructions, then we call it a general crossing, and it can be deposited in any account.
Encashment or Encashing
When a valid cheque is deposited in an account, it takes a few days until your bank receives money from the bank that maintains the cheque issuer’s account. This collection is known as encashment. Encashment takes about two bank days in Sri Lanka thanks to the Lanka Clear network, but in other countries such as the USA, this process takes about seven work days.
If the depositor and the issuer belong to the same bank, then the encashment happens within one day or even less since the bank has to collect money within its own accounts. Anyone who wishes to encash a cheque over the counter (without depositing) can only be done so in a bank branch of the issuer’s bank.
Cheque bouncing is where a cheque deposited in your account is refused encashment because the cheque issuer’s account did not have sufficient money to honour the cheque. Your bank will contact you, and you are supposed to go and collect the cheque that you previously submitted for encashment.
Banks do not take any responsibility to honour a cheque if the cheque issuer does not have money. But the issuer’s bank will charge a penalty against the cheque issuer’s account for every cheque bounced which is around Rs.200/- per cheque bounced as a way of discouraging account owners to issue cheques for which funds are not available.
You can deposit a bounced cheque again on a later date once you have sorted out the payment with the cheque issuer, and if the issuer has verified, the funds are now available in the account. If the issuer has issued a cheque and is not honouring it, you can take legal action to recover your dues, and the cheque becomes a strong proof in a court of law.
The rear of the cheque is kept for two types of endorsements. Endorsements of the depositor and endorsements of the bank. If you are depositing a cheque it is advised to write your name and account number at the back in the area left for the depositor’s endorsement.
If you are cashing the cheque over the counter, the bank will ask you to write your name, NIC number and put two signatures, as well as provide a mobile or phone number of yours. This is to track back if a thief has encashed a cheque over the counter.
Depositing a Cheque
When depositing a cheque in your bank account, you must fill a cheque deposit slip and attach the cheques to it. You can deposit more than one cheque in a single deposit as long as the cheques are within the valid period. Banks maintain cheque deposit machines as well, where you can deposit cheques throughout the day.
Remember to retain the counter foil of the deposit slip or the receipt given by the bank until all the cheques you deposited together are encashed into your account. Remember to endorse the cheque with the account number so that bank errors can be minimised. The cheque can be deposited in a cheque account, but nowadays, some banks allow you to deposit cheques in some savings accounts as well after you speak to the bank manager and explain what the payment is for.
Bank Drafts, Pay Orders or Manager’s Cheques
I’ve explained earlier that though you have a valid cheque in your hand, you may end up not getting paid for it since the issuer not having funds in the account to honour it. Further, the issuer’s bank or your bank is not responsible for honouring it. Therefore cheques carry a risk of not getting paid.
Bank drafts are there to make sure this risk is taken out. A bank draft is a cheque issued by a bank branch and is always guaranteed to get paid. It's also called a pay order or a manager’s cheque. So how do you get a bank draft? Well, you need to go and speak to a bank branch and tell them you need a bank draft. What the bank will do is they will take the money worth the amount to put on the cheque from your account and issue you a cheque belonging to the bank.
You must, of course, tell the bank for whose name the cheque must be drawn/written. The cheque is signed by the bank and states it’s a bank cheque. Since the bank collected the money upfront, it is guaranteed to be honoured by the bank when you deposit it in your account. You also have to pay a fee of around Rs.300/- for every bank draft you raise. If you don’t know the buyer and if the amount involved is big, such as a payment for a sale of a vehicle or sale of a property, then demanding a bank draft is the safe option than accepting a standard cheque.
Should I Open a Cheque Account?
If you are an individual looking to open a cheque account, the answer will most probably be a “no”. Unless there is a pressing reason for you to issue cheques, in the Sri Lankan context, you can get away without a cheque account. So what if you receive a cheque from someone?
As I said earlier, nowadays, most banks allow you to deposit cheques to your savings accounts. Some banks require you to get a manager’s signature to make the deposit, and managers will usually ask what the payment is about. Sri Lanka is comparatively relaxed with charges and fees on cheque accounts compared to the USA and the Middle East. But still, there is no interest paid on your balance, and you need to maintain a minimum balance which is substantial for an average person + you must have activity on your account as well.
When Will My Account Receive the Money From a Cheque I Deposited?
The encashment process takes a few bank work days. Usually, it is midnight of a bank day for the same bank’s cheques and two bank days for different bank’s cheques. The same bank’s cheques are cheques where the depositor’s and the cheque issuer’s accounts are in the same bank.
The encashment period may be longer if you deposit a cheque after 3 pm or at a bank outlet that is not a real bank branch. A bank outlet is a place where the bank maintains a presence, like in supermarkets or malls, but it is not a real branch. When you deposit a cheque in those outlets, they send the cheques to a branch the outlet attached to on the following day, where the cheques get added to the bank’s system for encashment.
So if you are in a hurry to get your money soon, deposit the cheque before 3 pm at a proper bank branch, and if it's not a crossed cheque, you can visit the bank the cheque belongs to and collect cash over the counter.
What to Do If the Cheque Has Expired?
Earlier I said that a personal cheque is valid for six months from the cheque date, and a business cheque is valid for three months (or less if specified). While this is sufficient time for anyone to encash a cheque, we might run into situations where we misplaced the cheque and found it after it expired.
Since the cheque is expired and you cannot deposit it as is, you need to meet the cheque issuer and ask him to change the date to the current date and then get his proper signature for the date change. Once the correction is done, the cheque becomes valid again. Or you can simply give your old check back and get a new cheque from the issuer.
Are Cheque Numbers Unique?
No, the cheque numbers are not unique. The cheque numbers are recycled over and over again. So a cheque number you had in one of your cheques might be reissued in a few months. But the banks make sure not to issue the same cheque number again for the same bank branch or to the same account.
Even if a cheque number is re-issued again, both cheques are still valid for use if drawn properly. This is why we have to fill in the cheque number and the bank branch details when we deposit a cheque. Since a Sri Lankan cheque number is only six digits long, a bank has only 999,999 cheque numbers to issue for all their cheques.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Menaka on July 10, 2020:
Realy a useful article.Thank you for your best effort...
Lahiru on May 23, 2020:
Jay on May 15, 2019:
Thank you for taking the time to write this article. This was very helpful.
There were some spelling errors I came across in a couple of places. Just pointing it out so that you can fix it.
Madusanka on May 03, 2019:
Thankyou very much
Thushara on April 16, 2019:
Thanks for the details
Prasad Pathirana on November 15, 2018:
Useful information given in simple language.
sahanaluvihare on October 24, 2018:
This had all what I wanted to know about bank cheques in Sri Lanka.. Really informative and helpful. Thanks
Mr Hasan on October 23, 2018:
Very useful article.
thank you for sharing your knowledge with others.
athi on October 16, 2018:
i got most useful informations by this article.
Hira on September 12, 2018:
It is very useful article . Thank you so much .
Shihari Chandrasekara on September 03, 2018:
Really helpful article, exactly what I was looking for.
Thank you so much.
dhu on August 29, 2018:
very usefull. thankyou so much.. can a people's account cheque convert into BOC account?
Ohla (author) on July 28, 2018:
Thank you and nice to hear it was clear and informative to read "All You Need to Know About Bank Cheques and Bank Drafts in Sri Lanka"
Ruwana on July 26, 2018:
very clear & informative article. Thank you.
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Chamila on May 26, 2018:
Very useful. Thank you.
shazna on May 07, 2018:
what is the maximum amount i can write a cheque for?
Kris on November 22, 2017:
Was so much useful to know all about cheques and banking in sri lanka
Thish on November 08, 2017:
Glad to hear it was useful.
Anj on November 07, 2017:
Very informative article. Thanks for this