Bearer Cheque vs Order Cheque: Difference and Comparison

Key Takeaways

1. Bearer cheques are payable to the person who presents the cheque, while order cheques are payable to a specific individual or entity mentioned on the cheque.
2. Bearer cheques pose a higher risk of fraud and theft, as anyone who possesses the cheque can cash it.
3. Order cheques provide an additional layer of security, as the payee must provide identification or endorsement for successful encashment.

What is a Bearer Cheque?

Through its name, the purpose of the cheque becomes quite clear. It is called a bearer cheque because anyone who bears it can encash it by submitting it to the bank. A bearer cheque provides anonymity to the person who carries it.

A person bearing this cheque does not need any identification to buy anything using this. It is a reason this type of cheque is not considered to be safe. Due to safety issues, several countries disapprove of bearer cheques. These countries encourage demand drafts.

Bearer cheques always have a limit. This limit is set not by the user but by the bank itself. The amount for the limit differs in every country.

What is Order Cheque?

You can quickly identify an order cheque by seeing the mentioned word beside the payee’s name. Encashing an order cheque is only possible after successfully verifying identification.

Every bank is responsible for issuing the payment to the right person. As a result, they will surely complete the identification process. This whole background-checking procedure makes order cheques safe and protected.

Anyone can pass an order check to another person by endorsing the transfer. The process of getting endorsed can be done. The person issuing the order cheque must sign the document back.

We can convert a bearer cheque to an order cheque by merely cutting off the printed “bearer” word. The bank can pay the money only to the ordered person, but only after verifying the identity of the cheque holder. 

Difference Between Bearer Cheque and Order Cheque

1. A bearer cheque can be identified simply by the word “bearer” written on the cheque. The term is put after the name of the payee on the cheque. Similarly, the word “order” is written right after the payee’s name in an order cheque.
2. The person who brings the bearer cheque to the bank will receive the money. But for an order cheque, the person mentioned on the cheque will obtain the money.
3. Bearer cheques are not very secure. On the contrary, order cheques are safer to proceed with.
4. The bank does not run any verification process for a bearer cheque. In comparison, the payment of an order cheque can only be made with verification.
5. The bank does not guarantee liability in payment to the wrong source for a bearer cheque. But when order cheques are used, banks will be responsible if the money goes to the wrong receiver.
6. Transferring a bearer cheque is easy as one only needs to deliver it. But transferring an order cheque is not hassle-free. One has to endorse it to be transferred.

Comparison Between Bearer Cheque and Order Cheque

Parameter of Comparison	Bearer Cheque	Order Cheque
What is it?	The word “bearer” is written right after the payee’s name in these cheques.	The word “order” in these cheques is written right after the payee’s name.
The receiver of the payment	The person who brings this type of cheque to the bank will receive the money.	This cheque is payable to the individual specified on it or their designated recipient.
Safety	These are not considered very safe.	Comparatively, these cheques are safer.
Liability of the bank	The bank does not bear any liability if the payment goes to the wrong person.	The bank is responsible if the payment made through these cheques goes to an incorrect recipient.
Means of transfer	To transfer this, one needs to deliver it.	Without being endorsed, it can not be transferred.

References

1. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/bondlr3&section=14
2. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/jsouafl1985&section=17

Last Updated : 30 July, 2023