Five (5) uses of bank cheque and why you should not use it

A bank cheque is a bill of exchange instructing a bank to pay a third party, whose name is specified, a particular sum of money within a specified date. It is a banking instrument that is used by individuals and businesses to seek funds from their bank immediately. As a result of the latest innovation in financial technology, the use of cheques is fading out.

Parties to a cheque

There are usually three parties to a cheque:

The drawer

This is the owner(s) of the bank account from which a withdrawal will be made. He issues the bank cheque to the third party or payee. Also, the drawer can be the payee if he or she collects the money from the bank.

The payee

The individual that withdraws the money from the bank through the cheque. In the definition, this is the third party.

Drawee

The bank where the money is withdrawn is the drawee. It is not necessarily the banker of the drawer. 

How a cheque is drawn

A cheque can be drawn from the bank of the drawer or through the bank of the payee. That is if the banker of the drawer is different from that of the payee. For example, the drawer bank can be the First Bank of Nigeria while the payee bank is Access Bank. Therefore, the payee will go to Access Bank where he or she has an account to withdraw the money. The fund will be credited to his bank account. 

After accepting the cheque, the drawee or the banker will use the clearing house system to cash out the funds from First Bank. This usually takes a maximum of three days in Nigeria. If the cheque is denied by First Bank for any reason, the drawer will be charged a penalty of 5,000 Naira for such a bridge and the payee will not receive the money.

The drawer may instruct the payee to withdraw the money from the banker of the drawer. In this case, the check will not pass through the clearing house system. And the money can be withdrawn on the same date.

Uses of a bank cheque

Current account

Only bank customers with a current account can use a cheque. This includes individual or corporate accounts’ holders. An individual with other banking products is not allowed to use a bank cheque. 

Overdraft

If a bank gives an overdraft facility to a customer. He can collect such overdrafts through a check. 

Ease of payment

It allows individuals and companies to pay their clients and suppliers without going to the banking premises. The drawer will simply issue a check with the name of the individual on it.

Serves as money

The bank cheque serves as money on its own. By simply holding it, the individual is said to be holding money, it doesn't matter if a sum of money is written on it or not.

Bill of Exchange

Like other bills of exchange such as electricity bills and promissory notes, the banking check is used as evidence of a transaction and proof that payment has been made.

Why you shouldn't use a bank cheque

As a result of current innovation in the banking sector, the use of bank cheques is in vogue. Cheques attract charges and require a longer period before the money is cashed out especially if the payee bank is different from that of the drawer. This inconvenience along with other banking inefficiency resulted in the development of financial technology companies. 

With the current technology, you can simply use your phone or a computer to initiate payment for a transaction and the other party gets the money. It doesn't matter if the drawer and payee operate different bank accounts. There are also borderless transfers. In which, an individual in Nigeria can transfer money to someone in Kenya or other countries. Therefore with this technology in place, I wonder why you should use checks for business transactions.