What Are The Reasons To Write A Cancelled Cheque
Since most small and large financial transactions are now done digitally, writing cheques is near-obsolete. But you might still come across things called ‘cancelled cheques‘. From providing account information to proving that the account belongs in your name – they serve many purposes.
A cancelled cheque is a regular cheque marked with two parallel lines. In most instances, the lines are drawn diagonally. The word ‘Cancelled’ or ‘Cancellation’ is written in capital letters in the space between them. Cancelling the cheque ensures that it can’t be misused.
At the same time, a cancelled cheque contains details like the account number, the account holder’s name, and the IFSC code. With a cancelled cheque, the receiver can check your information efficiently. Further, a cancelled cheque prevents the chances of a payment from getting credited to the wrong account.
So, read on as we learn more about cancelled cheques and why we need to write them.
6 Reasons Why People Use Cancelled Cheques
- Opening a Demat Account
A depository-cum-mutual fund account, or a Demat account, is a bank account that lets customers buy units and shares of different funds. It also allows customers to sell their units and shares at any time.
Cancelled cheques are a great way to prove your identity and open an account. In this case, you must provide two cancelled cheques with your name on them.
- Withdrawal from the Employees’ Provident Fund
The Employees’ Provident Fund is a type of social security that lets you build a retirement corpus. To withdraw from your EPF account, you need to show proof. These include your Aadhaar card, PAN card, and a cancelled cheque. The cancelled cheque shows which account you want the money to credit to. Remember that EPF funds can’t be withdrawn until the officials check the bank details. It protects your corpus against financial fraud.
- Starting EMIs
EMI, ‘equated monthly instalment’ is a payment made to repay a loan over time. They are crucial to any transaction where a creditor lends money to a borrower. Similarly, when a borrower buys something on credit from a seller, they must provide cancelled cheques. For example, suppose you want to buy a high-priced electronic gadget. Different sellers will offer different EMI plans. No matter what you choose, you must show proof of your identity and credit score. One of these is a cheque that has been returned. It lets the bank or other financial organisation check your information.
- Electronic Clearance Service
Electronic Clearance Service (ECS) is a system that lets you process and import clearance applications electronically. It is used to make payments like salary, pension dividends, interest, and so on. ECS is also used to collect payments in bulk, like for water taxes, electric bills, phone bills, etc. In short, it is a service that moves money from one bank account to another. Your bank will ask for a cancelled cheque when you set up ECS payments from your account. This cancelled cheque will show that you have a legitimate bank account. It will help verify the information you put on the ECS form about your bank, ensuring that the money goes to the right account.
- Buying a new Insurance Policy
Buying a policy of insurance is a financial transaction. You pay periodic premiums to keep the policy active. At the same time, the insurer will provide coverage when a situation meets the policy guidelines. Hence, insurance service providers must have the correct information about your account. When you buy new insurance, the insurer asks for a cancelled cheque, among other proofs. It gives the insurance company information about your bank account.
- Loan processing after approval
As a borrower, you’ve probably gone through the process of applying for a loan.
You finally get the loan after weeks of filling out forms and waiting for your credit check to be done. You might feel happy and relieved that your loan is finally going through, but there is still another step to take after you sign the papers. This includes providing ID and address proof documents and a cancelled cheque. It indicates which account should the loan amount be deposited into.
Last Word
In a world of financial crimes, a cancelled cheque has become one of the easiest ways to validate your account information and secure transactions. Giving someone a cancelled cheque is not risky because they can’t use it to get money.
But the fact that you have a cheque shows that you have an active bank account. It ensures that your account information doesn’t get messed up in the process. But there are ways to make it easier for you to do these things.
Check out the customer-friendly programmes Piramal Finance offers, so you don’t have to fill out too many forms.