CREDIT INSTRUMENTS ?Credit Instruments are the documentsdescribing details of credit and debit. CreditInstruments provide a written means fromfuture reference describing terms andconditions of any debt and loan.Credit Instruments may be an order forpayment of money to a specified person or itmay be a promise to pay the loan.Credit Instruments generally in use arecheques, bills of exchanges, bank overdraftetc.
KINDS OF CREDIT INSTRUMENTSCHEQUEPROMISSORY NOTEBILL OF EXCHANGEBANK DRAFTGOVERNMENT BONDTREASURY BILLS
#1 CHEQUEA cheque is the most common instrument ofcredit and almost works like money. It is awritten order on a printed form by adepositor (drawer) to his bank to pay a sumof” money to himself or to somebody else,whose name is entered on it, or to the bearer,i.e., the man who holds it (i.e., drawee).According to Section 6 of the NegotiableInstrument Act, 1881, “A cheque is a bill ofexchange drawn upon a specified banker andpayable on demand.”
From this definition, it is clear that a cheque is a bill ofexchange, but it has the following two additionalqualifications:(i) It is always drawn on a specified banker, and(ii) It is always payable on demand.Parties to a Cheque:i. Drawer:The drawer is the person who signs the cheque ordering the bank topay the amount.ii. Drawee:The drawee is a bank on which cheque is drawn.iii. Payee:The payee is a person to whom the sum of money expressed in theorder is payable. Sometimes drawer and payee are the same person.
KINDS OF CHEQUE1,BEARER CHEQUE2, ORDER CHEQUE3, CROSSED CHEQUE4, POST-DATED CHEQUE5, BLANK CHEQUEBEARER CHEQUEAny one, who happens to have the cheque, can get it cashed. Inthis case, the bank need not worry as to who presents it at thecounter. If a bearer cheque is lost, the finder can cash it unlessthe bank is notified in time to stop the payment. The drawer runsthe risk of losing his money, and not the bank.