Writing checks is fast becoming a thing of the past, but some people my age still use them. I recently planned a catered Christmas party for my Sunday school class, and 36 people attended. The majority paid me for their meals with cash or checks. Very few used Venmo or Zelle. I do write at least one check a month for my HOA dues. Recently, we were offered a way to pay them electronically, but I still send in a check because it costs more to pay on the website. There are fewer people writing checks in the grocery store now. I remember having to wait a lot longer in line in the past while people slowly wrote checks for their purchases. I assume there are probably less check manufacturers now also. I use my credit card for almost everything because I earn frequent flyer miles, usually enough for a couple of domestic trips a year. I did used to like ordering the checks with lovely art on them. My current checks have dolphins swimming on them. They take me out of land-locked Dallas and transport me to the ocean where I would rather be. There is also the chore of balancing the checkbook. I will admit sometimes putting it off. Seems I always add or subtract something incorrectly. It is quite amazing how a small piece of paper is a legal document promising to pay someone else. Let’s learn more about checks.
According to Wikipedia, a check is a document that orders a bank or credit union to pay a specific amount of money from a person's account to the person in whose name the check has been issued. The person writing the check, known as the drawer, has a transaction banking account —often called a checking or share draft account — where the money is held. The drawer writes the various details including the monetary amount, date and a payee on the check, and signs it, ordering his or her bank, known as the drawee, to pay that person or company the amount of money stated.
Definition of a check as per The National Provincial Bank circa 1968 was "an unconditional order in writing drawn on a banker, signed by the drawer, instructing the banker to pay on demand a sum certain in money to or to the order of a specified person or to bearer and which does not order any act to be done in addition to the payment of money."
Although forms of checks have been in use since ancient times and at least since the 9th century, it was during the 20th century that checks became a highly popular non-cash method for making payments and the usage of checks peaked. By the second half of the 20th century, as check-processing became automated, billions of checks were issued annually; these volumes peaked in or around the early 1990s. Since then, check usage has fallen, being partly replaced by electronic payment systems. In an increasing number of countries checks have either become a marginal payment system or have been completely phased out.
History
The check had its origins in the ancient banking system, in which bankers would issue orders at the request of their customers to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency — for example, gold — to purchase goods and services.
Early years
There is early evidence of using checks. In India, during the Maurya Empire from 321 to 185 BC, a commercial instrument called the adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person.
The ancient Romans are believed to have used an early form of check known as praescriptiones in the 1st century BC.
Beginning in the third century AD, banks in Persian territory began to issue letters of credit. These letters were termed čak, meaning "document" or "contract." The čak became the sakk later used by traders in the Abbasid Caliphate and other Arab-ruled lands. Transporting a paper sakk was more secure than transporting money. In the ninth century, a merchant in one country could cash a sakk drawn on his bank in another country.
Ibn Hawqal in the 10th century, quotes the use of a check worth 42,000 dinars in the Ghana Empire.
In the 13th century in Venice the bill of exchange was developed as a legal device to allow international trade without the need to carry large amounts of gold and silver. Their use subsequently spread to other European countries.
In the early 1500s in the Dutch Republic, to protect large accumulations of cash, people began depositing their money with "cashiers." These cashiers held the money for a fee. Competition drove cashiers to offer additional services including paying money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment. This concept went on to spread to England and elsewhere.
Modern era
By the 17th century, bills of exchange were being used for domestic payments in England. Cheques, a type of bill of exchange, then began to evolve. Initially, they were called drawn notes, because they enabled a customer to draw on the funds that he or she had in the account with a bank and required immediate payment. These were handwritten, and one of the earliest known still to be in existence was drawn on Messrs Morris and Clayton — scriveners and bankers based in the City of London — and dated February 16, 1659.
In 1717, the Bank of England pioneered the first use of a preprinted form. These forms were printed on "cheque paper" to prevent fraud, and customers had to attend in person and obtain a numbered form from the cashier. Once written, the cheque was brought back to the bank for settlement. The suppression of banknotes in 18th-century England further promoted the use of cheques.
Until about 1770, an informal exchange of cheques took place between London banks. Clerks of each bank visited all the other banks to exchange cheques while keeping a tally of balances between them until they settled with each other. Daily cheque clearing began around 1770 when the bank clerks met at the Five Bells, a tavern in Lombard Street in the City of London to exchange all their cheques in one place and settle the balances in cash. This was the first bankers' clearing house.
Provincial clearinghouses were established in major cities throughout the UK to facilitate the clearing of cheques on banks in the same town. Birmingham, Bradford, Bristol, Hull, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham, Sheffield and Southampton all had their own clearinghouses.
In America, the Bank of New York began issuing checks after its establishment by Alexander Hamilton in 1784. The oldest surviving example of a complete American checkbook from the 1790s was discovered by a family in New Jersey. The documents are in some ways similar to modern-day checks, with some data preprinted on sheets of paper alongside blank spaces for where other information could be handwritten as needed.
It is thought that the Commercial Bank of Scotland was the first bank to personalize its customers' cheques in 1811 by printing the name of the account holder vertically along the left-hand edge. In 1830 the Bank of England introduced books of 50, 100 and 200 forms and counterparts, bound or stitched. These cheque books became a common format for the distribution of cheques to bank customers.
In the late 19th century, several countries formalized laws regarding cheques. The UK passed the Bills of Exchange Act 1882, and India passed the Negotiable Instruments Act, 1881. Both covered cheques.
In 1931, an attempt was made to simplify the international use of cheques by the Geneva Convention on the Unification of the Law Relating to Cheques. Many European and South American states, as well as Japan, joined the convention. However, countries including the U.S. and members of the British Commonwealth did not participate, and so it remained very difficult for cheques to be used across country borders.
In 1959 a standard for machine-readable characters — magnetic ink character recognition code or MICR — was agreed upon and patented in the U.S. for use with checks. This opened the way for the first automated reader/sorting machines for clearing checks. As automation increased, the following years saw a dramatic change in the way in which checks were handled and processed. Check volumes continued to grow; in the late 20th century, checks were the most popular non-cash method for making payments, with billions of them processed each year. Most countries saw check volumes peak in the late 1980s or early 1990s, after which electronic payment methods became more popular and the use of checks declined.
In 1969 checque guarantee cards were introduced in several countries, allowing a retailer to confirm that a cheque would be honored when used at a point of sale. The drawer would sign the cheque in front of the retailer, who would compare the signature to the signature on the card and then write the cheque guarantee card number on the back of the cheque. Such cards were generally phased out and replaced by debit cards, starting in the mid-1990s.
From the mid-1990s, many countries enacted laws to allow for cheque truncation, in which a physical cheque is converted into electronic form for transmission to the paying bank or clearing-house. This eliminates the cumbersome physical presentation and saves time and processing costs.
In 2002, the Eurocheque system was phased out and replaced with domestic clearing systems. Old Eurocheques could still be used, but they were now processed by national clearing systems. At that time, several countries took the opportunity to phase out the use of cheques altogether. As of 2010, many countries have either phased out the use of cheques altogether or signaled that they would do so in the future.
Usage
Parties to regular cheques generally include a drawer, the depositor writing a check; a drawee, the financial institution where the check can be presented for payment; and a payee, the entity to whom the drawer issues the check. The drawer drafts or draws a check — which is also called cutting a check, especially in the U.S. There may also be a beneficiary. For example, in depositing a check with a custodian of a brokerage account, the payee will be the custodian, but the check may be marked "F/B/O" — "for the benefit of" — the beneficiary.
Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee's account or in some circumstances may be a third party to whom the payee owes or wishes to give money.
A payee that accepts a check will typically deposit it in an account at the payee's bank and have the bank process the check. In some cases, the payee will take the check to a branch of the drawee bank, and cash the check there. If a check is refused at the drawee bank — or the drawee bank returns the check to the bank that it was deposited at — because there are insufficient funds for the check to clear, it is said that the check has been dishonored. Once a check is approved, and all appropriate accounts involved have been credited, the check is stamped with some kind of cancellation mark, such as a "paid" stamp. The check is now a cancelled check. Cancelled checks are placed in the account holder's file. The account holder can request a copy of a cancelled check as proof of a payment. This is known as the check clearing cycle.
Checks can be lost or go astray within the cycle or be delayed if further verification is needed in the case of suspected fraud. A check may thus bounce some time after it has been deposited.
An advantage to the drawer of using checks instead of debit card transactions is that they know the drawer's bank will not release the money until several days later. Paying with a check and making a deposit before it clears the drawer's bank is called "kiting" or "floating" and is generally illegal in the U.S., but rarely enforced unless the drawer uses multiple checking accounts with multiple institutions to increase the delay or to steal the funds.
Declining use
Check usage has been declining for some years, both for point of sale transactions — for which credit cards and debit cards are increasingly preferred — and for third-party payments (for example, bill payments), where the decline has been accelerated by the emergence of telephone banking and online banking. Being paper-based, checks are costly for banks to process in comparison to electronic payments, so banks in many countries now discourage the use of checks, either by charging for checks or by making the alternatives more attractive to customers. In particular the handling of money transfer requires more effort and is time-consuming. The check has to be handed over in person or sent through mail. The rise of automated teller machines or ATMs means that small amounts of cash are often easily accessible, so that it is sometimes unnecessary to write a check for such amounts instead.
Alternative payment systems include:
1. Cash
2. Debit card payments
3. Credit card payments
4. Direct debit initiated by payee
5. Direct credit initiated by payer — ACH in U.S., giro in Europe, Direct Entry in Australia
6. Wire transfer — local and international — such as Western Union and MoneyGram
7. Electronic bill payments using internet banking
8. Online payment services e.g., PayPal, Unified Payments Interface, PhonePe, Paytm and
9. Money orders
Cashier’s checks and bank drafts
Cashier's checks and banker's drafts — also known as bank checks, banker's checks or treasurer's checks — are checks issued against the funds of a financial institution rather than an individual account holder. Typically, the term cashier's check is used in the U.S. and banker's draft is used in the UK and most of the Commonwealth. The mechanism differs slightly from country to country, but in general, the bank issuing the check or draft will allocate the funds at the point the check is drawn. This provides a guarantee, save for a failure of the bank, that it will be honored. Cashier's checks are perceived to be as good as cash, but they are still a check, a misconception sometimes exploited by scam artists. A lost or stolen check can still be stopped like any other check, so payment is not completely guaranteed.
Certified checks
When a certified check is drawn, the bank operating the account verifies there are currently sufficient funds in the drawer's account to honor the check. Those funds are then set aside in the bank's internal account until the check is cashed or returned by the payee. Thus, a certified check cannot "bounce," and its liquidity is similar to cash, absent failure of the bank. The bank indicates this fact by making a notation on the face of the check, technically called an acceptance.
Money or postal orders
A check sold by a post office, bank or merchant such as a grocery store for payment in favor of a third party is referred to as a money order or postal order. These are paid for in advance when the order is drawn and are guaranteed by the institution that issues them and can only be paid to the named third party. This was a common way to send low value payments to third parties, avoiding the risks associated with sending cash by post prior to the advent of electronic payment methods.
Oversized checks
Oversized checks are often used in public events such as donating money to charity or giving out prizes such as Publishers Clearing House. The checks are commonly 18 by 36 inches in size; however, according to the Guinness Book of World Records, the largest ever is 39 feet × 82 feet. Until recently, regardless of the size, such checks could still be redeemed for their cash value as long as they would have the same parts as a normal check — although usually the oversized check is kept as a souvenir and a normal check is provided. Any bank could levy additional charges for clearing an oversized check. Most banks need to have the machine-readable information on the bottom of checks read electronically, so only very limited dimensions can be allowed due to standardized equipment.
Payment vouchers
In the U.S. some public assistance programs such as the Special Supplemental Nutrition Program for Women, Infants and Children or Aid to Families with Dependent Children make vouchers available to their beneficiaries, which are good up to a certain monetary amount for purchase of grocery items deemed eligible under the particular program. The voucher can be deposited like any other check by a participating supermarket or other approved business.
Payroll checks
A check used to pay wages may be referred to as a payroll check. Even when the use of checks for paying wages and salaries became rare, the vocabulary "pay check" still remained commonly used to describe the payment of wages and salaries. Payroll checks issued by the military to soldiers or by some other government entities to their employees, beneficiants and creditors are referred to as warrants.
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