What is Payee in Cheque?
A cheque is a written instruction from an account holder (the drawer) to their bank (the drawee) to pay a specified amount of money to a person or organization. The person or organization receiving the payment is called the payee. In simple terms, the payee is the individual or entity whose name appears on the cheque and who is entitled to receive the money.
In India, when you receive a cheque, you first check that your name (or your organization’s name) is correctly written in the “Payee” field. This ensures that only you (or your organization) can deposit or encash the cheque.
The payee could be a person (for example, “Mr. Raj Kumar”), a company (“XYZ Technologies Pvt. Ltd.”), or even “Bearer” if the drawer wants anyone holding the cheque to be able to encash it. However, writing “Bearer” is less secure because anyone who holds the cheque can present it to the bank.
The concept of a payee is central to cheque safety. By specifying a payee, the drawer reduces the risk of someone else fraudulently encashing the cheque. Indian banks follow guidelines set by the Reserve Bank of India (RBI) to ensure that payee details are clear and legible.
How Does Payee in Cheque Work?
Filling Out the Payee Field:
- When you write a cheque, you will see a line labeled “Pay” or “Payee.” Here, you must write the full name of the person or organization to whom you intend to make the payment.
- Example: If you want to pay ₹10,000 to your landlord, you would write: Pay: Mr. Sunil Sharma. Always use clear, legible handwriting and avoid leaving extra space. If there is a gap after the name, draw a line to the end of the space so that no one can add extra words.
Crossing the Cheque for Account Payee:
In India, most cheques are crossed with two parallel lines and often bear the words “Account Payee Only” or “A/C Payee.” This crossing ensures that the cheque can only be deposited into the bank account of the payee whose name is on the cheque.
This prevents the payee from withdrawing cash directly at the bank counter. Instead, they must route the funds through their own bank account. It adds an extra layer of security.
Presenting the Cheque at the Bank:
- The payee (or payee’s authorized representative) takes the cheque to their bank branch. They deposit it into their account by filling out a deposit slip and submitting the original cheque.
- The bank verifies the payee’s name and signature if required. For instance, if the payee is “XYZ Technologies Pvt. Ltd.,” only officials authorized to sign on behalf of XYZ will handle the deposit.
- Once the deposit is accepted, the receiving bank sends the cheque to the clearinghouse. In India, clearinghouses operate under the umbrella of Cheque Truncation System (CTS). The cheque information is digitized and transmitted electronically to the drawer’s bank branch.
Clearing and Payment:
- The drawer’s bank verifies: (a) that the signature on the cheque matches the one on record, (b) that there are sufficient funds in the drawer’s account, and (c) that the payee’s name is clear and unambiguous.
- After verification, funds are debited from the drawer’s account and credited to the receiving bank’s clearing account. Ultimately, the payee’s bank credits the payee’s account with the cheque amount, usually within 1-2 working days, depending on whether it is an intra-city or inter-city cheque.
Importance of Correct Payee Details:
- If the payee’s name is misspelled or unclear, the bank may return the cheque unpaid. This causes delays and additional charges.
- To avoid confusion, always write the payee’s name exactly as it appears on their bank account. For organizations, use the registered name. For individuals, include full names (first and last) rather than nicknames.
Components of a Payee in Cheque
Payee Name:
- The payee’s full legal name must be written clearly.
- Avoid abbreviations or initials unless they exactly match the name registered with the payee’s bank. For example, if your friend’s account is held as “RAJ KUMAR GUPTA,” writing “Raj Gupta” may cause a mismatch.
- Use capital letters if that is your bank’s requirement for clarity.
Account Payee Crossing:
- Two parallel lines drawn across the top-left corner of the cheque with the words “A/C Payee” or “Account Payee Only” ensures the cheque can be deposited only into the payee’s account.
- This indicator prevents unauthorized encashment and is a key security feature in Indian banking.
- If you want to allow anyone to encash the cheque, you can leave the cheque uncrossed and omit “A/C Payee.” However, this is not recommended due to security risks.
Date Field:
- Although not part of the payee’s information, dating the cheque is crucial. The date must be filled in the format DD/MM/YYYY.
- In India, banks usually honor cheques up to three months from the date specified. After three months, the cheque becomes stale-dated and is not payable.
Amount in Words and Figures:
- The amount to be paid must be written in both words (on the line following “Rupees”) and figures (in the box on the right).
- Make sure the amount in words matches the amount in figures exactly. If there is any discrepancy, banks will usually consider the amount in words as the correct figure.
Signature of the Drawer:
- Only the drawer’s signature (the person writing the cheque) is required to authorize payment.
- The bank compares this signature with the one on file to ensure authenticity. A mismatched or missing signature can lead to the cheque being rejected.
Drawer and Drawee Information:
- The drawer’s name and account number are pre-printed on cheque leaves.
- The drawee (bank branch) is also pre-printed. Always ensure you use cheque leaves from your own cheque book and do not tamper with these pre-printed details.
Transaction Reference Details (Optional Customization):
- In some cheque designs, there may be a small “Remarks” or “Memo” field where the drawer can note the purpose of the payment (for example, “Rent for June 2025”).
- This helps both parties keep track of payments but is not mandatory for cheque clearance.