What Is a Cheque? How to Use and Issue It?

A cheque has long been the signature of business transactions and remains a powerful tool today, serving both as a payment method and a financing instrument. So, what exactly is a cheque? How is it issued, what are its types, and what happens in case of a bounced cheque? Let’s explore all the details together on Papel Blog.

What is a cheque?

A cheque, one of the most widely used negotiable instruments in commerce, is a written order to pay addressed to a bank. The person who issues the cheque, known as the drawer, instructs the bank to “pay this amount to the person or bearer specified.” This allows secure payments without the need to carry cash.

For businesses, cheques are an important financial tool that helps regulate cash flow by allowing the payment for goods or services to be made at a later date. Today, many companies manage cheque-based payments more efficiently through Papel Merchant Hub and solutions for merchants.

In Türkiye, cheque transactions are regulated by Law No. 5941 on Cheques and the Turkish Commercial Code. These laws clearly define the elements a cheque must contain, the presentation periods, and the responsibilities of the parties involved. In practice, processes such as cheque issuance, cheque endorsement, and cheque payments operate within this legal framework.

The difference between a cheque and a promissory note

Although both cheques and promissory notes document debt relationships, there are key differences between them. A cheque is a written payment order addressed to a bank, while a promissory note is a written commitment by the debtor to pay a specified amount to the creditor.

In a cheque, the bank is the payee; in a promissory note, the debtor is the payer. Cheques are typically “payable on demand,” while promissory notes are paid on the agreed-upon due date. Cheques can only be issued on special forms printed by banks, whereas promissory notes can be written freely. The legal consequences also differ: if a cheque is not honored, bounced cheque provisions apply; if a promissory note is not paid, the creditor must initiate enforcement proceedings to collect the debt.

What are the types of cheques?

Depending on the needs of the transaction, there are different types of cheques. The most common are postdated cheques and bank/cashier’s cheques.

Postdated cheque

A postdated cheque is a type of cheque issued to be payable on a future date. In other words, the cheque given to the payee cannot be cashed immediately; it must be presented to the bank once the date arrives. The period during which a cheque must be presented to the bank—known as the cheque payment period—varies depending on where it was issued. This provides businesses with extra time for payments while offering creditors a secure collection tool.

It is important to note that under Turkish law, a cheque is essentially “payable on demand.” While postdated cheques are common in practice, the future date does not legally constitute a due date. If a cheque is to be cashed before its maturity, a cheque discounting process can be applied. In this case, the cheque discount rate, meaning the discount rate applied by banks or factoring companies, should be taken into account.

Bank cheque and cashier’s cheque

A bank cheque is a cheque drawn on a bank instructing payment to a person or bearer. In these cheques, the drawer must have an account with the bank.
A cashier’s cheque, on the other hand, is a special type of cheque issued by the bank itself, meaning the drawer and the drawee are the same bank. These cheques are generally used for internal bank transactions or large payments to ensure secure transfers.

How to issue a cheque?

Issuing a cheque requires attention to ensure both legal validity and ease of payment. The word “cheque” must appear on the document, and the place and date of issue must be clearly written. The name of the payee (creditor) or the phrase “to bearer” should be stated, and the payment amount must be written both in figures and in words. The bank branch where the payment will be made and the drawer’s wet signature must also be included.

Incomplete or incorrectly filled cheques can render a cheque payment invalid. Therefore, all details must be clear and consistent. After issuance, a cheque inquiry can be conducted to verify its authenticity. In addition, the cheque must be presented to the bank within the legally defined presentation period; otherwise, the right to collect may be lost.

How to use a cheque?

The use of cheques involves several steps for both the issuer and the recipient.

Opening a cheque account

Anyone wishing to use cheques must first open a cheque account with a bank and obtain a cheque book. During this process, the bank reviews the client’s financial history and checks for any record of bounced cheques.

Writing the cheque

The drawer must fill out the cheque correctly and completely: the issue date, amount, payee name, and bank details must all be accurate. Missing information can invalidate the cheque.

Payment or collection by cheque

The drawer pays the debt by delivering the cheque to the payee. The recipient, once the due date arrives, presents it to the bank to collect the amount. If the cheque is to be converted to cash before maturity, the postdated cheque may be processed through a cheque discounting method.

Endorsement (transfer)

A cheque is a transferable instrument. If it bears the phrase “to bearer” or has the necessary signatures, it can be transferred to another person. This process is called cheque endorsement. Endorsement transfers the right of collection to the new holder, allowing the cheque to circulate in the market.

Presentation period and bounced cheque risk.

The presentation period varies depending on where the cheque was issued—typically between ten days and one month. If the cheque is not presented within this period, the holder may lose the right to collect. If there are insufficient funds in the account, the cheque is considered a bounced cheque, and both the drawer and any guarantors may face legal penalties.

Legal regulations and obligations regarding cheques

Cheque transactions are governed by Law No. 5941 on Cheques. The drawer is legally required to maintain sufficient funds in the account to cover the cheque. If the cheque is dishonored, the bank marks it as “bounced”, and the legal process begins. The drawer may face judicial fines or be prohibited from issuing cheques in the future.

Furthermore, those who acquire a cheque through endorsement (transfer) bear certain responsibilities if the cheque is dishonored. Each endorsement chain creates rights and obligations between the previous and new holders. Therefore, accurate record-keeping and complete signatures are crucial when transferring cheques.

 

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This blog post contains general information, not legal, financial, or investment advice. The content is prepared for informational purposes only, and you are advised to seek professional advice for your specific circumstances. The expressions in this article do not carry any binding nature or responsibility and reflect only the author’s evaluation. All your decisions are your responsibility, and Papel Electronic Money and Payment Services Inc. accepts no liability for any consequences arising from them.