What is Cancelled Cheque:- In the world of banking and finance, the term “cancelled cheque” might sound perplexing to some, especially for those who are not well-versed with banking procedures. However, a cancelled cheque is a simple yet significant document that serves various purposes in financial transactions. Let’s delve into what exactly a cancelled cheque is and how to write one.
Cancelled Cheque
Main Contents
A cancelled cheque is essentially a financial tool nullified by the account holder. While the term may initially appear contradictory, it holds significant importance in banking, finance, and administrative procedures. Today, we delved into the concept of cancelled cheques, including their significance and the proper method of preparation.
Cancelled Cheque Overview
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| Year | 2024 |
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What is the Cancelled Cheque?
A Cancelled Cheque bears parallel lines with the word “cancelled” written within them, and the account holder marks it with diagonal lines to render it unusable for transactions. This distinctive marking signifies that the cheque is void for payments, withdrawals, or any financial dealings. Despite being cancelled, these cheques retain sensitive information such as the account holder’s name, bank account number, amount, cheque number, IFSC code, and more, making them susceptible to cybercrime. Therefore, it’s imperative to destroy cancelled cheques promptly after rendering them void.
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Cancelled Cheques Uses
Cancelled cheques serve various purposes beyond mere errors. Here are several common uses:
- Verification of Bank Account: Cancelled cheques are essential for confirming individual bank account details. They’re required when opening a new bank account, applying for loans, or setting up electronic fund transfers (EFTs). Many financial institutions mandate the submission of cancelled cheques.
- KYC Verification: In Know Your Customer (KYC) compliance procedures for banks, financial institutions, and regulated entities, cancelled cheques play a crucial role. They help verify the authenticity of the customer’s banking relationship and identity.
- Automatic Bill Payment: Utility companies, service providers, and subscription-based businesses often request cancelled cheques to initiate automatic bill payments. These cheques authorize companies to debit bank accounts for recurring payments like electricity bills, phone bills, insurance premiums, or membership fees.
- EPF Withdrawal: When withdrawing funds from the Employee Provident Fund (EPF) account, cancelled cheques are necessary to verify bank details.
- Electronic Transactions: Cancelled cheques are commonly used to authorize electronic transactions such as Electronic Clearing Service (ECS). By providing cancelled cheques along with the requisite forms, individuals authorize regular fund transfers from their bank accounts to other parties, ensuring a convenient and secure process.
- EMI Setup: Submitting a cancelled cheque to the bank or Non-Banking Financial Company (NBFC) is required to set up Equated Monthly Installments (EMIs) for loans or credit amounts. It serves as proof of the bank account from which EMI payments will be directly debited each month.
- Demat Account: Investors need to submit cancelled cheques as part of their Know Your Customer (KYC) documentation when opening a demat account.
These various uses underscore the importance of cancelled cheques in numerous financial and administrative processes.
Why Are Cancelled Cheques Required?
Cancelled cheques serve multiple purposes in the realm of banking and finance:
- Verification of Bank Account Details: When you issue a cancelled cheque, it provides proof that you indeed own a bank account with the bank mentioned on the cheque. This is often required for various financial transactions, such as setting up electronic funds transfer (EFT), automated clearing house (ACH) payments, or for verifying bank account details for employer payroll purposes.
- Mandate Verification: In some cases, cancelled cheques are required to verify authorization for specific financial transactions, such as setting up SIP (Systematic Investment Plan) for mutual funds or availing loan facilities.
- Direct Debit Authorization: Cancelled cheques may also be required when authorizing a service provider to directly debit funds from your account, such as for utility bill payments or loan EMIs (Equated Monthly Installments).
How to Write a Cancelled Cheque?
Here’s a guide on how to write a cancelled cheque if it’s requested by a bank or non-banking financial company (NBFC):
- Obtain a fresh cheque from the chequebook provided by your bank. Ensure that it includes all necessary account details, such as your name, account number, and the bank branch address.
- Draw two parallel diagonal lines across the cheque.
- In capital letters, write the word “CANCELLED” between the parallel lines. Use either a blue or black pen for this step.
- Ensure that the parallel lines and the word “CANCELLED” do not cover any essential information such as your name, account number, or other details on the cheque.
Following these steps will properly render the cheque void for its intended purpose.
Cancelled Cheque Possible Risks
A cancelled cheque is widely employed for diverse financial and administrative tasks, yet it poses certain risks worth noting:
- Unauthorised Use: Once marked as cancelled, there’s a risk of unauthorized individuals misusing the cheque since it retains all pertinent information.
- Identity Theft: The cancelled cheque encompasses sensitive details like the account holder’s name, account number, and banking particulars. If it falls into the wrong hands, there’s a heightened risk of identity theft or fraudulent endeavors.
- Data Breaches: In today’s digital era, even cancelled cheque information is susceptible to data breaches. It can be stored or transmitted electronically, potentially compromising security.
- Fraudulent Activities: Fraudsters may exploit cancelled cheques for various fraudulent activities. With the surge in cybercrime, the risk is particularly pronounced in contemporary times.
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Conclusion
In conclusion, a cancelled cheque serves vital functions in banking and administrative processes, despite associated risks like unauthorized use and identity theft. Understanding how to properly write a cancelled cheque ensures its effectiveness for verification and transactions. By following simple steps, one can safeguard against potential misuse while utilizing this financial tool for various purposes, from verifying bank accounts to setting up automatic bill payments. Vigilance in handling cancelled cheques remains essential in mitigating risks and ensuring financial security.
FAQ’s
What is the concept of cancelled cheque?
A cancelled check is one that has been processed and cleared by the bank it was issued from, either through deposit or cashing. Once utilized or paid, the check is marked as cancelled, rendering it unusable for further transactions to prevent duplication or misuse.
How do I cancel a cheque given to someone?
To halt payment on a check, visit a bank branch or communicate with the bank via phone or online, ensuring direct interaction with a representative, not an automated system. Request a stop payment order, providing details such as the check number, amount, recipient's name, and date. Additionally, follow up with a written notice for documentation purposes.
What is a cancelled cheque?
A cancelled cheque is one that has been marked void or invalidated by drawing two parallel lines across it and writing CANCELLED between them. It's commonly used for various financial and administrative purposes.
Can a cancelled cheque be misused?
While a cancelled cheque is void for payments, it still contains sensitive information. There is a risk of unauthorized use, identity theft, or fraudulent activities if it falls into the wrong hands.
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