Difference between Bearer Cheques and Order Cheques (Bearer Cheques vs Order Cheques)
The main difference between bearer cheques and order cheques is that a bearer cheque can be cashed by anyone who possesses them, while an order cheque requires the endorsement of the named payee to be cashed or deposited.
Throughout the world, cheques are a popular and convenient method of payment. The use of cheques allows for easy transfer of funds between accounts without the use of physical cash or credit cards. However, each type of cheque has its own set of rules and restrictions.
We will compare and contrast two types of cheques in this article – bearer cheques and order cheques.
Table of Contents
What is a Bearer Cheque?
A bearer cheque is a type of cheque that is payable to the person who possesses it, without any restrictions or conditions.
It is possible for anyone who holds the cheque to cash or deposit it, regardless of whether they are the intended recipient. It is also known as a “cash cheque” because the bearer can convert it instantly into cash.
As bearer cheques can be easily stolen or lost, they are generally considered less secure than order cheques. If bearer cheques are stolen or lost, anyone who finds them can cash them, which can result in financial losses for the account holder.
Due to this, many banks and financial institutions do not issue bearer cheques or limit their use to specific situations, such as dividends and interest payments.
What is an Order Cheque?
Alternatively, an order cheque is a type of cheque that is payable only to the person or organization indicated on the cheque. The payee must endorse the cheque by signing it on the back before it can be cashed or deposited.
Order cheques are also known as “payable to order” since they are only payable to a specific entity or person.
Because order cheques cannot be cashed by anyone other than the payee, so they are regarded as more secure than bearer cheques. Because the intended recipient can only use the cheque, it makes it less prone to fraud or theft.
However, ordering cheques may be more inconvenient for the payer because they must ensure the correct payee is named and that the payee endorses it before it can be cashed.
What is the Difference between Bearer Cheques and Order Cheques?
Bearer cheques and order cheques differ in several ways. Some of the main differences include:
- Payee: Bearer cheques can be cashed or deposited by anyone who possesses the cheque, while order cheques can only be cashed or deposited by the named payee.
- Security: Bearer cheques are less secure than order cheques, as they can be easily stolen or lost. Order cheques are more secure, as they can only be used by the named payee.
- Endorsement: Bearer cheques do not require endorsement, while order cheques must be endorsed by the named payee before they can be cashed or deposited.
- Convenience: Bearer cheques are more convenient for the payer, as they can be cashed or deposited by anyone who possesses them. Order cheques may be less convenient, as they require the correct payee to be named and for the payee to endorse the cheque before cashing it.
Bearer Cheques vs Order Cheques
| Feature | Bearer Cheque | Order Cheque |
|---|---|---|
| Payee | Anyone who possesses the cheque | Only the named payee |
| Security | Less secure as anyone who possesses the cheque can cash it | More secure as only the named payee can cash it |
| Endorsement | Not required | Required by the named payee |
| Convenience | More convenient for the payer, as they do not need to name a payee | May be less convenient for the payer, as they need to name a payee and wait for the payee to endorse the cheque |
| Legal Status | Legal in some countries, but not in others | Legal in most countries, but subject to certain regulations and restrictions |
Do I need to endorse bearer cheques and order cheques?
Bearer cheques do not require endorsement since they are payable to anyone who presents them. As a result, a bearer cheque can be presented to a bank or financial institution without needing endorsement, and you will be paid without needing to fill out an endorsement form.
Alternatively, the named payee must endorse an order cheque before it can be deposited or cashed. Signing the back of the cheque signifies the payee has received the funds and authorizes the bank or financial institution to release them.
If an order cheque is not properly endorsed, it may be returned or delayed, and in some cases, the cheque may even be invalid if it is incomplete or incorrectly endorsed.
What happens if I write an incorrect name on an order cheque?
An order cheque may not be accepted by the bank or financial institution if the name on the cheque is incorrect. It is important to ensure the payee’s name is spelled correctly and matches the information on their bank account when writing an order cheque.
You can correct an order cheque if you make an error by crossing out the incorrect name and writing in the correct name above it. Nevertheless, this can be risky since some banks may reject the cheque if any alterations or corrections are made to it.
Are order cheques more secure than bearer cheques?
The order cheque is generally more secure than a bearer cheque because it must be endorsed by the intended recipient to be cashed or deposited. The bearer cheque, on the other hand, can be cashed by anyone who has it, making it easier for fraud or theft to occur.
In addition, many financial institutions may have additional security measures in place for order cheques, such as verifying the identity of the beneficiary and checking for proper endorsement, which further safeguards against fraud.
Can I deposit a bearer cheque and order cheque into someone else’s bank account?
According to the policies of your financial institution, you may or may not be able to deposit a bearer cheque or an order cheque into someone else’s bank account. It is generally not recommended to deposit a bearer cheque into someone else’s account, since it is payable to anyone who presents it.
It is possible, therefore, for anyone, even someone who is not authorized to cash the cheque, to cash it if it is lost or stolen.
Alternatively, an order cheque can be deposited into someone else’s bank account as long as the named payee endorses the cheque by signing it on the back. A check endorsement indicates that the payee has received the funds and authorizes the bank or financial institution to release them.
Some financial institutions, however, may have additional policies regarding the deposit of cheques. To endorse a cheque, they may require that the account holder provide written authorization or that the named payee be present in person.
Can I convert a bearer cheque into an order cheque, and vice versa?
A bearer cheque cannot be converted into an order cheque, or vice versa. Cheque types are determined by how they are written and issued. If you have been issued a bearer cheque and wish to make it more secure, you may ask the issuer to re-issue the cheque as an order cheque, with your name as the payee.
Alternatively, you may be able to deposit the bearer cheque into your own bank account and then issue a new order cheque from your account. Conversely, it is not possible to convert an order cheque into a bearer cheque if you have been issued one.
It is possible for the named payee to endorse a cheque and transfer it to another person, effectively turning it into a bearer cheque in some cases. The risk of fraud or unauthorized access to funds can, however, be increased if you do this, as it is not recommended.
What happens if a bearer cheque is presented for payment after it has expired?
After a bearer cheque expires, it is unlikely that the bank or financial institution will honor it. Generally, cheques have an expiration date of six months from when they are issued. If the cheque has expired beyond this date, it will be considered stale-dated and no longer valid.
If a bearer cheque is presented for payment after it has expired, the bank may return it as unpaid or may hold the funds until the cheque is reissued or replaced with a new cheque. If you want to avoid issues with expired checks or stale cheques, cash or deposit the cheque as soon as possible after you receive it.
There are also some banks that may charge a fee for reissuing a stale-dated check or for processing a stale-dated cheque. These fees can vary depending on the bank and the specific circumstances of the transaction.
Can I use a bearer cheque or order cheque to pay my bills?
You can use both bearer cheques and order cheques to pay your bills, as long as the payee accepts cheques as a form of payment. Many utility companies, credit card companies, and other billers will accept cheques as a method of payment.
It is critical to ensure the bearer cheque or order cheque is properly made out and that all necessary information is included on the cheque, such as the name of the payee and the amount of the payment.
To avoid future problems with the payment, it is also recommended to keep a record of the cheque number and the date of its issuance. Depending on the biller, you may also be able to pay your bill online, through a mobile app, or any other electronic method.
These methods of payment are often more convenient and faster than mailing a cheque, and may also offer additional security features to protect against fraud and unauthorized transactions as well.
Can I issue a bearer cheque or order cheque from a joint account?
If you are a joint account holder, you may be able to issue both bearer cheques and order cheques depending on the specific needs of the account holders.
Nevertheless, it is important to note that all account holders must sign a cheque issued from a joint account. This is because all account holders have equal ownership and control over the funds in the account.
A joint account is a bank account that is shared by two or more people who have equal access to the funds. An account holder may face legal consequences if he or she signs a cheque without the knowledge or consent of other account holders. This is considered fraud.
Also, bearer cheques can be cashed by anyone who has them, so it is important to consider the potential risks associated with issuing bearer cheques. For this reason, it is generally recommended to issue order cheques instead, since they can only be cashed by the named payee or their authorized representative.
What happens if the named payee on an order cheque is deceased?
If the named payee on an order cheque is deceased, the cheque cannot be cashed by the payee or their representative. In this case, the cheque may need to be returned to the issuer or the issuer’s bank.
The specific procedure for handling a cheque with a deceased payee can vary depending on the policies of the bank or financial institution. In some cases, the cheque may be re-issued to the estate of the deceased payee or to their designated beneficiary.
It is important to note that when a payee passes away, their bank accounts and financial assets may be subject to the laws of inheritance and probate in their jurisdiction.
The executor of the payee’s estate or their designated beneficiary may need to provide legal documentation to the bank or financial institution in order to access the funds from the cheque or other accounts.
Which one is better – Bearer Cheques or Order Cheques?
Bearer cheques may be more convenient for the payer as they do not require a named payee and can be cashed or deposited by anyone who possesses them. However, they are also less secure, as they can be easily stolen or lost.
Order cheques are more secure since the named payee can only use them, but they may be less convenient for the payer, as the correct payee must be named, and the payee must endorse the cheque before it can be cashed. The processing of order cheques may also incur higher fees from some financial institutions.
In choosing between a bearer cheque and an order cheque, it is important to consider the particular circumstances of the transaction.
For example, an order cheque may be more appropriate if the payment is being made to a trusted person or organization. In contrast, a bearer cheque may be more convenient if the recipient is unknown or the amount is small.
In many countries, bearer cheques are no longer legal due to the increased risk of fraud and theft. Instead, all cheques must be payable to a specific individual or organization.
Conclusion: Bearer Cheques vs Order Cheques
In conclusion, bearer cheques and order cheques are two types of cheques with different rules and restrictions.
Bearer cheques can be cashed or deposited by anyone who possesses them, while order cheques can only be cashed or deposited by the named payee. Order cheques are generally considered more secure than bearer cheques but may be less convenient for the payer.
When choosing between the two types of cheques, it is important to consider the specific circumstances of the transaction and choose the option that is most appropriate.
References
- Fritz Redlich and Webster M. Christman, Business History Review, “Early American Checks and an Example of Their Use“.
- Harold C. McCollom, Columbia Law Review, “Liability of Banks Receiving Checks to a Trustee’s Order for Deposit in his Individual Account“.
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