A cancelled cheque is a financial instrument that has been invalidated by the account holder. The term “Cancelled Cheque” may seem paradoxical. It serves an important purpose in banking, finance and administrative processes. Today, we learned about cancelled cheques and how to write them etc.
What is a Cancelled Cheque?
A Cancelled Cheque is crossed by parallel lines with cancelled words written between them. It is marked cancelled by the account holder by parallel diagonal lines. This cancellation mark indicates that the cheque cannot be used for making payments, withdrawals, or any other financial transactions. Remember, the cancelled cheques still contain the sensitive information of the cheque holder like bank account number, account holder name, amount, cheque number, IFSC code and many more. Yes, it can be used for cybercrime. So, they need to be destroyed after cancelling the cheque.
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Uses Of Cancelled Cheques:-
Cancelled cheques are not used only when it is a mistake, there are many uses for cancelled cheques like-
- Verification of Bank Account: The primary use of cancelled cheques is to verify the individual bank account details. It needs to be submitted when you are opening a new bank account, applying for loans, or setting up electronic fund transfers (EFTs). Many financial institutions also require cancelled cheques.
- KYC Verification: Cancelled cheque plays an important role in the Know Your Customer (KYC) compliance for banks, financial institutions, and other regulated entities. By providing a cancelled cheque for the KYC, a bank or financial institute verifies the authenticity of the customer’s banking relationship and identity.
- Automatic Bill Payment: Many utility companies, service providers, and subscription-based businesses ask for cancelled cheques to begin the automatic bill payment. It is required to authorise the company to debit their bank account for recurring payments such as electricity bills, phone bills, insurance premiums, or membership fees.
- EPF Withdrawal: Cancelled cheque is required while withdrawing funds from the Employee Provident Fund (EPF) account. They verify the bank details with the cancelled cheques.
- Electronic transaction: Cancelled cheque is often used to authorise electronic transactions such as Electronic Clearing Service (ECS). By providing cancelled cheques with the required form, individuals authorise the transfer of funds from their bank account to another party regularly. It makes the process easy and secure.
- For EMI: To set up the EMI for any loan or credit amount from the bank or Non-Banking Financial Company (NBFC), it is required to submit the cancelled cheque to the bank or provider. It is proof of your bank account, which will be used to directly debit the EMI amount every month.
- Demat Account: To open the demat account, investors need to submit the cancelled cheque as a document of Know Your Customer (KYC) documents.
How to write a cancelled cheque?
If you are required a cancelled cheque for a bank or non-banking financial company (NBFC), then follow this-
- Take a fresh cheque from the chequebook issued by your bank. Make sure it has all account details, including your name, account number, and bank branch address.
- Draw two parallel diagonal lines on the cheque.
- Write the word “CANCELLED” between the parallel lines in the capital letter. Make sure to use a blue or black pen only.
- Remember, parallel lines do not cover any important details like name, account line, etc.
Possible Risks Of Cancelled Cheque
A cancelled cheque is commonly used for various financial and administrative purposes, but there are certain risks associated with it that you should know-
- Unauthorised Use: After being marked as cancelled, there is a risk of misuse by an authorised individual of the cancelled cheque, because it contains all the information.
- Identity Theft: The cancelled cheque contains all the sensitive details like the account holder’s name, account number, and bank details. If it reaches to wrong hands, there is a risk of identity theft or fraudulent activities
- Data Breaches: In the digital age, there is a risk of data breaches even with the cancelled cheque information. It can be restored or transmitted electronically.
- Fraudulent Activities: Fraudsters may exploit cancelled cheques for various fraudulent activities. Nowadays, cybercrime is at its peak.
Hence, we suggest handing over the cancelled cheque to the right person only or otherwise disturbing it completely.
FAQs:-
1. What is a cancelled cheque?
– A cancelled cheque is a cheque that has been invalidated by crossing it with parallel diagonal lines and marking it with the word “CANCELLED.” It contains the account holder’s sensitive information but cannot be used for transactions.
2. Why are cancelled cheques used?
– Cancelled cheques are primarily used to verify bank account details for various purposes such as opening a new bank account, applying for loans, setting up electronic fund transfers, and KYC verification.
3. How do you write a cancelled cheque?
– Take a fresh cheque from your chequebook and draw two parallel diagonal lines across it. Write the word “CANCELLED” between the lines in capital letters using a blue or black pen.
4. Can a cancelled cheque be used for payments?
– No, a cancelled cheque cannot be used for payments, withdrawals, or any other financial transactions.
5. What are the risks of using a cancelled cheque?
– Risks include unauthorized use, identity theft, data breaches, and fraudulent activities if the cancelled cheque falls into the wrong hands.
6. Is it safe to provide a cancelled cheque?
– Providing a cancelled cheque to a trusted institution or party is generally safe, but it is important to be cautious about who you give it to and to destroy it properly after use.
7. How can cancelled cheques be used for automatic bill payments?
– Cancelled cheques can be used to authorize a company to debit an individual’s bank account for automatic bill payments, such as utility bills or subscription fees.
8. Are cancelled cheques necessary for EPF withdrawal?
– Yes, cancelled cheques are often required to verify bank details when withdrawing funds from an Employee Provident Fund (EPF) account.
9. Can a cancelled cheque be used for electronic transactions?
– Yes, cancelled cheques can be used to authorize electronic transactions, such as Electronic Clearing Service (ECS), for regular fund transfers from one account to another.
10. What should you do with a cancelled cheque after use?
– Once a cancelled cheque has served its purpose, it should be safely destroyed to prevent misuse and protect sensitive information.
