Cash and Cheque: What are the Benefits and Drawbacks?
Updated: 18 Jul 24
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Have you ever wondered about the differences between Cash and Cheque in financial transactions? Clearly, each serves a unique purpose. Cash is physical currency, including coins and banknotes, which allows for immediate payments. It’s perfect for small transactions and doesn’t require a bank account.
Conversely, a cheque is a written, dated, and signed document that instructs a bank to pay a specified amount to the bearer or a designated person. Cheques offer a secure method for handling larger transactions, providing a formal record of payment and minimizing the risk of carrying substantial amounts of cash. In this article, we will explore the distinctions between cash and cheques in detail, highlighting how each method can be best utilized depending on your financial needs.
Difference between Cash And Cheque
| Aspect | Cash | Cheque |
| Definition | Physical currency in the form of coins and banknotes. | A written, dated, and signed instrument that directs a bank to pay a specific amount of money to the bearer or a designated person. |
| Form | Tangible (coins and banknotes). | Paper document. |
| Acceptance | Universally accepted for most transactions. | Accepted by individuals, businesses, and banks, but may require bank processing. |
| Processing Time | Immediate; no delay in the transfer of funds. | May take several days to clear and for funds to be available. |
| Security | Risk of theft or loss; difficult to trace once stolen. | Can be stopped or cancelled if lost or stolen; provides a record of payment. |
| Convenience | Easy for small transactions; no need for a bank account. | More convenient for large transactions; safer for sending by mail. |
| Transaction Limit | Limited by the amount of physical cash on hand. | Can be written for any amount, provided sufficient funds are in the account. |
| Proof of Payment | Receipts can be given as proof. | The cheque itself serves as proof of payment, along with bank records. |
What is cash?
Cash is physical money in the form of coins and banknotes that is used as a medium of exchange for goods and services. It is the most liquid form of currency, allowing for immediate and direct transactions without the need for intermediary instruments or electronic processing. Cash is universally accepted and can be used for a wide range of purchases, making it a fundamental component of everyday financial transactions.
What are the benefits of cash?
Immediate Payment: Cash allows for the instant transfer of funds, with no waiting period. You can easily make cash payments in shops without waiting for bank processing.
Universal Acceptance: Cash is widely accepted for most transactions worldwide; almost everyone accepts cash.
No Fees: Typically, there are no transaction fees associated with using cash. You have full control and ownership of your money.
Privacy: Cash transactions are private and do not leave a paper trail, maintaining anonymity.
What are the Drawbacks of cash?
Security Risks: There is a high risk of theft or loss, and it is difficult to recover once stolen. Carrying cash outside your home can be unsafe.
Inconvenient for Large Sums: Handling large amounts of cash can be cumbersome and unsafe, making it impractical for significant transactions.
No Proof of Payment: Without a receipt, there is no formal record of the transaction. If someone refuses to repay, you have no evidence of the payment.
Limited to Physical Presence: Both parties must be physically present to complete the transaction, limiting the convenience of remote or online payments.
No Interest or Earnings: Cash does not earn interest or provide any return on investment when held outside of a bank, which is a significant drawback.
What is a cheque?
A cheque (or check) is a written, dated, and signed instrument that directs a bank to pay a specific amount of money from the writer’s account to the bearer or a designated payee. It serves as a secure method to transfer funds from one party to another, typically used for larger transactions or when a formal record is required. Cheques provide a traceable record of payment and can be stopped or cancelled if lost or stolen, ensuring a high level of security. Additionally, only the designated payee can withdraw the specified amount, preventing unauthorized access to your funds.
What are the benefits of cheque?
Security: Can be cancelled if lost or stolen, providing a safer option for large amounts.
Convenient for Large Transactions: It is Easier and safer to handle large payments.
Proof of Payment: Provides a formal record of the transaction, which can be useful for accounting and disputes.
Delayed Payment: Useful for managing cash flow, as the recipient may take time to deposit the Cheque.
What are the drawbacks of cheque?
Processing Time: It takes several days to clear and for funds to be available.
Bank Fees: May incur fees for issuing or processing cheques.
Acceptance: Not universally accepted; some individuals and businesses may prefer other payment methods.
Potential for Bounce: Risk of a cheque being returned due to insufficient funds, causing inconvenience and possible fees.
What are the types of cheques?
Here are the types of cheques listed by name:
- Bearer Cheque
- Order Cheque
- Crossed Cheque
- Open Cheque
- Post-dated Cheque
- Ante-dated Cheque
- Stale Cheque
- Traveler’s Cheque
- Banker’s Cheque or Demand Draft
FAQs About Cash and Cheques
Are there any processing fees with Cheque deposits?
Yes, there can be processing fees associated with cheque deposits, depending on the bank’s policies and the type of account you hold. Some banks may charge a fee for depositing cheques, particularly if you exceed a certain number of free deposits per month. Additionally, if a deposited cheque is returned due to insufficient funds in the payer’s account, the bank might impose a fee for handling the bounced cheque. Depositing foreign cheques often incurs extra fees due to the additional processing required. Moreover, if you send cheques to the bank via mail or courier, there could be related costs. It’s important to check with your bank to understand the specific fee structures for cheque deposits.
Under what conditions can I accept cash payments?
You can accept cash payments under several conditions. Ensure legal compliance by adhering to local laws and tax reporting requirements, and set transaction limits to minimize risk. Implement security measures, such as secure storage and regular bank deposits, and conduct transactions in a safe environment. Provide receipts and maintain detailed records of all cash transactions. For customer convenience, ensure you have enough change and consider cash for smaller transactions or where electronic payments aren’t feasible. Lastly, use tools and training to detect counterfeit currency. By following these guidelines, you can safely and effectively accept cash payments.
How to stop payment on a cheque?
To stop payment on a cheque, act quickly by contacting your bank through phone, online banking, or in person. Provide necessary details such as the cheque number, date, amount, and payee’s name. Fill out any required stop payment forms and be prepared to pay a stop payment fee. Confirm with the bank that the request has been processed and monitor your account to ensure the cheque is not cleared. If it does clear, contact your bank immediately.
What steps should you take if your cheque is missing?
If your cheque is missing, act immediately by contacting your bank to request a stop payment. Provide details about the cheque and monitor your account to ensure it’s not processed. Inform the payee and consider issuing a new cheque if necessary. If you suspect theft, file a police report.
What precautions should one take when accepting cash payments for large transactions?
When accepting cash payments for large transactions, several precautions should be taken to ensure security and legality. Firstly, verify the authenticity of the cash received to prevent counterfeit currency. Secondly, ensure that the transaction complies with local laws and tax regulations, keeping detailed records for reporting purposes. Additionally, consider conducting the transaction in a secure location and using a counterfeit detection device if available. Lastly, provide a receipt to the payer as proof of payment and maintain transparency throughout the transaction process. These precautions help mitigate risks and ensure the smooth handling of large cash transactions.
What are the steps involved in depositing a cheque into a bank account?
Depositing a cheque into a bank account involves several steps. First, endorse the back of the cheque by signing your name. Then, fill out a deposit slip with your account information and the cheque details. Next, either visit a bank branch or use a mobile banking app to deposit the cheque electronically. If visiting the bank, present the cheque and deposit slip to a teller or use an automated deposit machine. If using a mobile app, follow the prompts to capture images of the front and back of the cheque and submit the deposit electronically. After depositing the cheque, keep the cheque in a safe place for your records. Finally, monitor your account to ensure the cheque is processed and the funds are available.
Here’s How to Deposit Your Cheque Successfully
Conveniently deposit cheques with just a few taps on the UBL Digital App.
To ensure smooth processing and avoid rejection, please update the following details on your cheque:
- Cross the Cheque: Draw two diagonal lines across the top left corner of the cheque.
- Mention the Beneficiary Name: Clearly write the beneficiary’s name on the cheque.
- Match the Account Title: Ensure the beneficiary name on the cheque matches the account title into which the cheque is being deposited.
By following these guidelines, you can make your cheque deposit process hassle-free and efficient.
Only for United Bank Customers
Easily deposit your cheque with just a few taps on the UBL Digital App.Conclusion:
Both Cash and Cheque contribute to the functioning of the economy by facilitating transactions and enabling the exchange of goods and services. While cash remains a ubiquitous form of payment, cheques offer added security and convenience for certain types of transactions, particularly in business contexts. The coexistence of Cash and Cheques payment methods provides individuals and businesses with flexibility and choice, supporting economic transactions at various levels.
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