The term cancelled cheque is commonly used in banking and financial documentation, yet it is often misunderstood. While it is not meant for making payments, it plays an important role in verifying bank account details across various processes.
Many people are unsure about how to write cancelled cheque correctly or when it is required, which can lead to confusion during documentation and application procedures.
In this blog, we will explore what is a cancelled cheque, how to make cancelled cheque properly, and where it is typically used, helping you understand and handle the process with ease.
What is a Cheque?
A cheque is a written instruction given to a bank to pay a specific amount of money from one account to another person or organisation. It is a legally accepted payment method governed by the Negotiable Instruments Act, 1881, which recognises a cheque as a bill of exchange. When issued correctly, it creates a formal obligation for the bank to transfer the stated amount, and every cheque transaction involves three parties:
- Drawer: The account holder who writes the cheque.
- Drawee: The bank responsible for processing the payment.
- Payee: The recipient for whom the funds are intended.
Cheques can be issued from savings or current accounts and offer a convenient, cashless way to make payments. A cheque is an unconditional order from the drawer instructing the bank to pay a fixed amount to the named payee. The amount payable cannot exceed the balance available in the drawer’s account, ensuring that sufficient funds are in place. Each cheque is drawn on a specific bank and is payable on demand, allowing the payee to receive the funds once the bank processes it. The drawer’s signature is mandatory, as it serves as formal authorisation for the transaction.
What are Cancelled Cheques?
A cancelled cheque means that the cheque has been made unusable for payment by drawing two parallel lines across it and clearly writing the word “CANCELLED” between them. Although it cannot be used to transfer money, it is still useful because it carries important banking details such as the account holder’s name, bank account number, IFSC code, and MICR code. These details help verify and track bank accounts, much like how a UTR number is used to identify and confirm a transaction.
For collateral free MSME loans, providing a cancelled check is a common step to confirm the applicant’s banking details and streamline the loan approval process.
How to Write a Cancelled Cheque
If you are wondering how to cancel a cheque, worry no more.
- Take a fresh cheque leaf from your cheque book.
- Draw two parallel lines across the cheque, preferably diagonally.
- Write “CANCELLED” in bold capital letters between the lines using a dark, permanent ink pen.
- Ensure the account number and IFSC code remain visible and unobstructed.
Why and When is a Cancelled Cheque Required?
There are several situations where you may be asked to submit a void cheque as part of standard documentation:
- KYC formalities: A cancelled cheque is required for various purposes, such as completing KYC formalities for investments in stocks, mutual funds, and insurance policies. It ensures that the account details provided are accurate and verified. These KYC checks often go hand in hand with other identity verifications, such as link Aadhaar with PAN card to ensure regulatory compliance.
- Opening a Demat account: It is also needed when opening a Demat account as a part of the documentation. This helps the institution verify the account holder’s information for secure trading.
- Withdrawing EPF funds : For withdrawing Employee Provident Fund (EPF), the use of cheque that is cancelled serves as proof of account ownership. It conforms to the accuracy of bank details for the transfer of funds.
- Setting up ECS or NACH mandates : A cancelled cheque is needed to set up Electronic Clearing Services (ECS) or National Automated Clearing House (NACH) mandates. These mandates allow automatic deductions for payments like utility bills or EMIs.
- EMI payments for loans : Lenders may request a cancelled cheque to verify account details when setting up Equated Monthly Instalments (EMIs) for loans. This ensures that the loan payments are accurately processed each month.
- Opening a new bank account: Banks may also request a cancelled cheque when opening a new account. This allows them to confirm the account holder’s details and link the new account accurately.
- Applying for business loans: cancelled check is often required as part of the documentation process when applying for business loans at Lendingkart, ensuring the bank has accurate account details for disbursing funds.This requirement is common across various government loan schemes for small businesses and MSME-focused financing options
How to Give Cancelled Cheque?
You can provide a void cheque either offline or online, depending on the requirements of the institution. The process differs slightly for physical submission and digital verification, as explained below.
Providing a Cancelled Cheque Offline
- Manual submission: Write “CANCELLED” across the cheque, making sure not to obscure essential details like the account number, IFSC code, and bank name. Hand over this cheque physically to the requesting party.
- Bank branch submission: For some institutions, you may be asked to provide a cancelled signed cheque directly at the bank branch. Ensure the cheque is properly marketed and then submit it as required.
Providing a Cancelled Cheque Online
- Scanned copy: Scan or take a clear photo of the void cheque and upload it, or send it securely by email through the concerned institution’s website, app, or official email address.
- Digital platforms: Many banking apps and platforms now offer ways to verify your bank account details without a physical check. They may request a soft copy, where you can upload cancelled cheque sample image directly.
Alternative verification: In some cases, banks may allow virtual verification methods using digital documentation of a cancelled cheque is not feasible.
Also Read- Advantages and disadvantages of Cheques
Risk Associated with a Cancelled Cheque
Even though a cancelled cheque cannot be used to withdraw money, it still displays sensitive banking details such as your account number and IFSC code. For this reason, it is important to share it only with trusted and authorised institutions. Careless handling, loss, or sharing it with unknown parties can increase the risk of misuse of your banking information.
misuse of the information. When securing working capital loans, lenders may request a cancelled check to verify the business’s bank account information.
What to do if You Lose a Cancelled Cheque?
If your cancelled cheque is lost or misplaced, take quick steps to protect your banking details. Inform your bank immediately so they can guide you on any necessary security measures. Keep a close watch on your account statements and report any unusual activity without delay. In such cases, banks may also accept alternatives like a bank statement with IFSC details or an official account verification letter to meet documentation requirements.
What is The Difference Between A Stop Payment And A Cancelled Cheque
| Stop Payment Cheque | Cancelled Cheque |
| A stop payment is a request made to your bank to prevent a specific cheque from being paid. | A cancelled cheque is rendered unusable for payment purposes by drawing two parallel lines across it and writing “CANCELLED” between them. |
| Stopping payment is a temporary measure to prevent a cheque from being encashed. | A cancelled cheque is permanently marked as unusable for payment. |
| Stop payment can be initiated for a specific cheque number or a range of cheque numbers. | A cancelled cheque is a single cheque leaf that has been marked as unusable. |
| Stop payment is a service provided by banks to protect against potential fraud or misuse of a cheque. | A cancelled cheque is used for various purposes like KYC, ECS, EMI, and account opening, but not for payment. |
Conclusion
A cancelled cheque is an essential tool in banking and finance, especially in India. Its primary function is to verify account details without enabling any transactions, making it highly useful for identification in financial documentation. This simple yet effective method helps facilitate various processes, from KYC formalities to loan applications. Simply use the format of the cancelled check sample to get started. It is also crucial to handle such cheques with care to prevent any misuse of sensitive banking information. Institutions like Lendingkart also request cancelled cheques during the business loan application process to ensure secure and accurate disbursement of funds.
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