Can a cancelled cheque be used to make a cash withdrawal?

Cancelled cheque

As digital payment platforms gain popularity in India, fewer people use cheques to make payments every year. But if you’ve ever been asked to give a lender a cancelled cheque to verify your bank account details, you probably have a few questions about cancelled cheques. Let’s discuss the purpose and advantages of cancelled cheques.

What is a cancelled cheque?

Cancelled cheques are cheques that you “CANCEL” and give to someone (usually your lender) to verify your bank account details.

The primary benefits of cancelled cheques are that they help your lender verify that you do, in fact, have a bank account with the bank you mentioned in your business loan application, and they help eliminate typographical errors.

Can the lender use my cancelled cheque to withdraw money from my account?

No, a lender (or anyone else) cannot use a cancelled cheque to withdraw money from your bank account. Due to the way we cancel cheques, bankers can identify the difference between a cancelled cheque and a cheque used to make a withdrawal or payment, thereby making any withdrawal from your bank account impossible with a cancelled cheque.

However, though cancelled cheques cannot be used to withdraw money from your account, it is advisable to only share one with a trusted source as it still has your sensitive financial information printed on it.

How do I cancel a cheque?

To prepare a cancelled cheque, you will need: A blank cheque and a blue or black pen.

Step 1: Using a blue or a black pen, draw two parallel lines diagonally across your blank cheque.

Step 2: Write ‘CANCELLED’ between the two parallel lines.

A cancelled cheque
A cancelled cheque

CreditEnable Tip:

For a cancelled cheque to be valid:

  1. Don’t write anything else on the cheque except “CANCELLED”.
  2. Don’t strike out any other details on the cheque.
  3. Don’t sign the cheque.

What information is printed on a blank cheque?

The following information is mentioned on each cheque:

  1. Name of the account holder
  2. Bank account number
  3. The Indian Financial System Code (IFSC) of the bank branch
  4. The Magnetic Ink Character Recognition (MICR) code of the bank branch
  5. The name of your bank, bank branch, and location
Information on a cheque
Anatomy of a cheque

Why is a cancelled cheque needed when I apply for a business loan?

When applying for a business loan, lenders use cancelled cheques for the following purposes:

  1. To verify your financial information: It tells them you have a bank account with a certain bank using which you will be able to make your loan EMI payments.
  2. To do Customer KYC: Cancelled cheques are used to do customer KYC when you apply for a personal or business loan, buy mutual funds, make stock investments, etc.

Learn more about cancelled cheques.

When you apply for a business loan using CreditEnable’s technology platform, you’ll know upfront what KYC and business documents you need to share with the lender. This helps our SME customers prepare their loan applications quicker so that our lender partners can conduct their credit assessment and disburse your money faster.

Start your business loan application today.

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