06/03/2021 All You Need to Know About Bank Cheques and Bank Drafts in Sri Lanka - ToughNickel - Money

MAY 4, 2020

All You Need to Know About Bank Cheques

and Bank Drafts in Sri Lanka
OHLA

Ohla holds a degree in Information Technology and also a Master in Business

Administration. She loves traveling & share her best tips.

Cheques are a banking instrument that is in decline but is still used in some countries
around the world. It’s in use in some of the big economies like USA, and it's a major
payment instrument in Sri Lanka, especially with the business community. But it is
surprising to see that most of the people I’ve spoken to have only a very basic knowledge
about cheques. Hence, I thought of writing this for those who are interested to know
about Sri Lanka bank cheques and their practices and regulations.

A cheque is a pre-printed piece of paper that has a specific standard layout. Cheques are
used as a payment instrument instead of cash and can be written/drawn for any amount
the cheque issuer wishes.

You Need a Cheque Account

If you want to issue cheques, you must first open a cheque account with your bank. If you
are an individual who wants to open a personal cheque account in Sri Lanka, then banks
require you to find another individual who already has a cheque account in the bank as an
introducer. This is a strange rule but it is what it is. An introducer is not needed to open a
business cheque account. Cheque accounts do not pay any interest on the balance like
savings accounts do, and cheque accounts has a minimum daily balance of around
Rs.10,000/- for personal accounts and around Rs.20,000/- for business accounts that you
need to maintain. You can usually obtain a debit card or a ATM card against the cheque
account. The cheque account has limits and what other facilities allow depends on the
bank you choose.

Depositing money to a cheque account: You can deposit money to a cheque account just
like you do to any other account such as a savings account. Usually you must fill a deposit
slip and then hand over the money to a teller with the slip. More details on this will be
provided later.

Withdrawing money from a cheque account: Unlike other accounts where you fill a
withdrawal slip to take money out of a cheque account, you need to write/draw a “Cash”
check with the amount you need to withdraw and give to the bank teller. I’ve explained
below how to draw a “Cash” check. But since cheque leaves are expensive I’d recommend
you to get an debit/ATM card and use the card to withdraw money from an ATM instead
of wasting a cheque leaf.
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Cheque Books
Banks issue blank/new cheques in books that contains a number of cheque leaves. You
must open a cheque account with a bank to obtain a cheque book. Since a cheque leaf
contains security features and special machine understood part and is printed on special
paper, it is quite expensive. As of today, a single leaf is priced around Rs.15/-. It is up to
you to decide how many cheque leaves you want to buy when you order a new cheque
book from your bank. How many cheque leaves you want depends on how often you issue
cheques. A cheque book must be ordered in the bank branch where you maintain your
cheque account.

Components of a Cheque
1. Cheque Date: Cheques are drawn with a specified date. The date can be any date you
want and need not be the date you are actually writing the cheque. But a cheque has a
validity period from the date indicated on the cheque. A personal cheque is valid for six
months while a corporate/business cheque is valid for only three months. Further some
business cheques are issued with specific validity periods less than three months. For
example, dividend payments are usually issued with a one-month validity period. The
date on a cheque is important because the cheque recipient can encash a cheque on or
after the cheque date and within the validity period. Encashing a cheque or
encashment is the term used to convert a cheque into real cash by either taking money
over the country of the bank or depositing the cheque in the recipient’s account.

2. Payee: The payee section is used to write the name of the person or company who is
supposed to encash the cheque. The Payee section has a pre-printed statement that
says “Or Bearer”. If you leave this section sd id then any person can encash the cheque
over the counter of a bank than the person’s name that appear on the cheque. But if it
is a business cheque, the banks restricts it to be encashed only by the person whose
name appear on the Payee section. You can write the word “Cash” as the payee instead
of a person or business name as well. This means that the cheque is meant to be used
just like cash. Any person who holds the cheque can encash it from a bank branch over
the counter. Further you can give a cash cheque you received from someone to another
party as well as a mode of payment. For instance say your received a Rs.5,000/- “Cash”
cheque from Mr. Perera and then you also has to pay Rs.5,000/- to Mrs. Silver, you can
simply hand over the cheque you received from Mr. Perera to Mrs. Silva. Therefore as
you can guess issuing “Cash” cheques are risky since if someone stole such a cheque or
payee loose the cheque anyone can encash it.

3. Amount in words: You must write the amount of the cheque in words on the dotted
lines provided. You can use Sinhala, Tamil or English but it is preferred you write it in a
language understood by any bank branch. Remember to use the word “Only.” at the end
of the amount in words so that no one can tamper or alter the amount later. I usually
include a short horizontal line after the word “Only.” as well just to make it even safer.
Computer printed cheques sometimes put two asterisks (*) at the end too to denote its
the end of the wording.

4. Amount in numerics: You must write the amount in numerical form within the box. The
amount you write here must be the same amount you wrote in words. Else the cheque
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will be rejected from the bank.

5. Authorized signatory: When you open a cheque account, you provide a sample
signature to the bank. You must place the same signature in this area to make the
cheque valid. This area is just under the box where you wrote the amount in numbers. A
cheque without a correct signature is an invalid cheque even if all other sections are
properly filled. Join cheque accounts may have one or more joint account holders that
needs to sign a cheque. You indicate at the account opening how many signatures a
cheque needs to have to make a cheque valid. Usually it is one signature or two
signatures. Having multiple signatories on a cheque to be valid is common practice for
business cheques and is used as a form of preventing fraud since two parties will verify
the cheque before signing. Such a cheque usually carry a company stamp as well.

6. Machine readable area: All cheques has a white horizontal area at the bottom of the
cheque. It is printed with numbers and special characters using a special ink called
magnetic ink and with a special font. This is a machine readable are and you must not
damage this section of a cheque. This is why the cheques are folder parallel to the
longer sites than shorter sites. It prevents any folding over this machine readable area.
Banks feed the cheque they receive to cheque scanners and this area is read by the
machine. The characters printed in this area are called magnetic ink characters.
Therefore, the cheque scanners are called MICR or Magnetic Ink Character Readers. In
Sri Lanka this area contains the 6 digit cheque number (enclosed between special
characters), then the 4 digit bank number followed by the three-digit branch code and
finally your account number. In some countries like USA this area will include additional
data such as routing numbers and clearance numbers as well.

How to Issue a Valid Cheque

In order to issue a valid cheque, you must fill all the sections properly without any
corrections. The date must be a date that won’t make the cheque invalid and the
handwriting must be clear. The signature must match the sample signature given to the
bank at the account opening. If you make mistakes while writing you must place the
signature close to each place you have done a correction. You will find a small piece of
paper extra in each cheque leaf attached to every cheque book. When you detach a
cheque leaf, this small piece is left with the cheque book. This is to write information you
put in the cheque for your reference. This piece of paper will have pre-printed sections for
cheque date, payee, amount and even the balance in the account after the cheque is
issued. It is a good practice to fill this section because a cheque is valid for six months and
you may forget what cheque is issued to whom over time.

Forward-Dated Cheques

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Sometimes cheques are issued with a future date. Such cheques are known as forward
dated cheque. When the cheque date is a future date you cannot deposit or encash the
cheque until the date arrives. This is common practice for business cheques where
businesses purchase items on credit. So when businesses purchase items on say 30 day
credit, the buying party issues a cheque to the selling party with a date that is 30 days in
future. Hence the seller received the payment but seller can only convert this into cash
after 30 days. By doing so, buyer can make sure he find enough money to honour/satisfy
the cheque he just issued within the next 30 days.

Crossing a Cheque
A crossed cheque is a cheque that is payable only through a collecting banker and not
directly at the counter of the bank. The simplest form of crossing is to draw two short
parallel lines on a cheque usually around the top left area without obstructing the
information on a cheque. You can use a seal or print crossing on the cheque as well.
Crossing instruct to the receiver of the cheque that the cheque must be deposited in an
account and cannot be encashed over the counter. This also means that there is a conflict
of crossing while using the word “Cash” as the payee. You must not cross a cash cheque
because the two practices are in conflict of each other. You can write restrictive
instructions between the two lines. If the instructions “Account Payee Only” is indicated
between the crossed lines then the cheque must be deposited in an account that match
the name written on the cheque as the payee. If the crossing carry a name of a bank as
instructions then it is to be collected through the bank name that appear between the
crossed lines. If the crossing does not carry instructions then we call it a general crossing
and can be deposited in any account.

Encashment or Encashing
When a valid cheque is deposited in an account it takes few days until your bank receives
money from the bank that maintain the cheque issuer’s account. This collection is known
as encashment. Encashment takes about two bank days in Sri Lanka thanks to the Lanka
Clear network but in other countries such as USA this process takes about seven work
days. If the depositor and the issuer belongs to the same bank, then the encashment
happens within one day or even less since the bank has to collect money within its own
accounts. Anyone who wish to encash a cheque over the counter (without depositing) can
only be done so in a bank branch of the issuer’s bank.

Cheque Bouncing

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Cheque bouncing is where a cheque deposited in your account is refused encashment

because the cheque issuer’s account did not have sufficient money to honour the cheque.
Your bank will contact you and you are supposed to go and collect the cheque that you
previously submitted for encashment. Banks do not take any responsibility to honour a
cheque if the cheque issuer do not have money. But the issuer’s bank will charge a penalty
against the cheque issuer’s account for every cheque bounced which is around Rs.200/-
per cheque bounced as a way of discouraging account owners to issue cheque for which
funds are not available. You can deposit a bounced cheque again on a later date once
you have sorted out the payment with the cheque issuer and if the issuer has verified the
funds are now available in the account. If by chance issuer has issued a cheque and is not
honouring it, then you can take legal action to recover your dues and the cheque becomes
a strong proof in a court of law.

Endorsements
The rear of the cheque is kept for two types of endorsements. Endorsements of the
depositor and endorsements of the bank. If you are depositing a cheque it is advised to
write your name and account number at the back in the area left for depositor’s
endorsement. If you are cashing the cheque over the counter, the bank will ask you to write
your name, NIC number and put 2 signatures, as well as provide a mobile or phone number
of yours. This is to track back if a thief has encashed a cheque over the counter.

Depositing a Cheque
When depositing a cheque in your bank account, you must fill a cheque deposit slip and
attache the cheques to it. You can deposit more than one cheque in a single deposit as
long as the cheques are within the valid period. Banks maintain cheque deposit machines
as well where you can deposit cheques throughout the day. Remember to retain the
counter foil of the deposit slip or the receipt given by the bank until all the cheques you
deposited together are encashed into your account. Remember to endorse the cheque
with the account number so that bank errors can be minimised. The cheque can be
deposited in a cheque account, but nowadays some banks allow you to deposit cheques
in some savings accounts as well after you speak to the bank manager and explain what
the payment is for.

Bank Drafts, Pay Orders or

Manager’s Cheques

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I’ve explained earlier that though you have a valid cheque in your hand, you may end up
not getting paid for it since the issuer not having funds in the account to honour it. Further
issuer’s bank or your bank is not responsible to honour it. Therefore cheques carry a risk of
not getting paid. Bank drafts are there to make sure this risk is taken out. A bank draft is a
cheque issued by a bank branch and is always guaranteed to get paid. Its also called a
pay order or a manager’s cheque. So how do you get a bank draft? Well you need to go
and speak to a bank branch and tell them you need a bank draft. What the bank will do is
they will take the money worth the mount to put on the cheque from your account and
issue you a cheque belonging to the bank. You must of course tell the bank for whose
name the cheque must be drawn/written. The cheque is signed by the bank and states it’s
a bank cheque. Since the bank collected the money upfront it is guaranteed to be
honoured by the bank when you deposit it in your account. You also has to pay a fee of
around Rs.300/- for every bank draft you raise. If you don’t know the buyer and if the
amount involved is big, such as a payment for a sale of a vehicle or sale of a property;
then demanding for a bank draft is the safe option than accepting a standard cheque.

Do NOT sign blank cheques!

This is a big NO NO. Do not sign blank cheques and keep with you for later use. A
cheque becomes valid once the proper signatures are put on it. Hence if you sign a
blank cheque it becomes a valid cheque for anyone to fill the other details that will
let them withdraw any amount of money from your account. You must write the
amount at minimum if you are handing over a signed cheque to someone else. The
receiver can write the payee name and the cheque date.

Should I Open a Cheque Account?

If you are an individual looking to open a cheque account, the answer will most probably
be a “no”. Unless there is a pressing reason for you to issue cheques, in Sri Lankan context
you can get away without a cheque account. So what if you receive a cheque from
someone? As I said earlier, nowadays most banks allow you to deposit cheques to your
savings accounts. Some banks require you to get a manager’s signature to make the
deposit and managers will usually ask what the payment is about. Sri Lanka is
comparatively relaxed with charges and fees on cheque accounts compared to USA and
middle east. But still there is no interest paid on your balance and you need to maintain a
minimum balance which is substantial for an average person + you must have activity on
your account as well.

When Will My Account Receive the

Money From a Cheque I Deposited?

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The encashment process takes few bank work days. Usually it is midnight of a bank day
for same bank’s cheques and 2 bank days for different bank’s cheques. Same bank’s
cheques are cheques where the depositor’s and the cheque issuer’s accounts are in the
same bank. The encashment period may be longer if you deposit a cheque after 3 pm or at
a bank outlet that is not a real bank branch. A bank outlet are places that the bank
maintain a presence like in supermarkets or malls but is not a real branch. When you
deposit a cheque in those outlets, they send the cheques to a branch the outlet attached
to on the following day where the cheques get added to the bank’s system for
encashment. So if you are in a hurry to get your money soon, deposit the cheque before 3
pm at a proper bank branch and if its not a crossed cheque you can visit the bank the
cheque belongs to and collect cash over the counter.

What to Do If the Cheque Has

Expired?
Earlier I said that a personal cheque is valid for 6 months from the cheque date and a
business cheque is valid for three months (or less if specified). While this is sufficient time
for anyone to encash a cheque, we might run into situations where we misplaced the
cheque and found it after it expired. Since the cheque is expired and you cannot deposit it
as is, you need to meet the cheque issuer and ask him to change the date to current date
and then get his proper signature for the date change. Once the correction is done the
cheque becomes valid again. Or you can simply give your old check back and get a new
cheque from the issuer.

Are Cheque Numbers Unique?

No, the cheque numbers are not unique. The cheque numbers are recycled over and over
again. So a cheque number you had in one of your cheques might be reissued in few
months. But the banks make sure not to issue the same cheque number again for the same
bank branch or to the same account. Even if a cheque number is re-issued again, both
cheques are still valid for use if drawn properly. This is why we have to fill in the cheque
number and the bank branch details when we deposit a cheque. Since a Sri Lankan
cheque number is only six digits long, a bank has only 999,999 cheque numbers to issue for
all their cheques.

Hope this helped you to learn about the A, B, Cs of cheque accounts! If you have
questions please leave a comment and I’ll try to find answers.

This article is accurate and true to the best of the author’s knowledge. Content is for
informational or entertainment purposes only and does not substitute for personal counsel
or professional advice in business, financial, legal, or technical matters.

Comments
Menaka on July 10, 2020:

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06/03/2021 All You Need to Know About Bank Cheques and Bank Drafts in Sri Lanka - ToughNickel - Money

Realy a useful article.Thank you for your best effort...

Lahiru on May 23, 2020:

Very useful

Jay on May 15, 2019:

Thank you for taking the time to write this article. This was very helpful.

There were some spelling errors I came across in a couple of places. Just pointing it out so
that you can fix it.

Madusanka on May 03, 2019:

Thankyou very much

Thushara on April 16, 2019:

Thanks for the details

Prasad Pathirana on November 15, 2018:

Thanks

Useful information given in simple language.

sahanaluvihare on October 24, 2018:

This had all what I wanted to know about bank cheques in Sri Lanka.. Really informative
and helpful. Thanks

Mr Hasan on October 23, 2018:

Very useful article.

thank you for sharing your knowledge with others.

athi on October 16, 2018:

i got most useful informations by this article.

thanks

Hira on September 12, 2018:

It is very useful article . Thank you so much .

Shihari Chandrasekara on September 03, 2018:

Really helpful article, exactly what I was looking for.

Thank you so much.

dhu on August 29, 2018:

very usefull. thankyou so much.. can a people's account cheque convert into BOC account?

Ohla (author) on July 28, 2018:

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06/03/2021 All You Need to Know About Bank Cheques and Bank Drafts in Sri Lanka - ToughNickel - Money

Thank you and nice to hear it was clear and informative to read "All You Need to Know
About Bank Cheques and Bank Drafts in Sri Lanka"

Ruwana on July 26, 2018:

very clear & informative article. Thank you.

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Chamila on May 26, 2018:

Very useful. Thank you.

shazna on May 07, 2018:

what is the maximum amount i can write a cheque for?

Kris on November 22, 2017:

Was so much useful to know all about cheques and banking in sri lanka

Thish on November 08, 2017:

Glad to hear it was useful.

Anj on November 07, 2017:

Very informative article. Thanks for this

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