OFFICE AUTOMATION – I OFFICE OPERATIONS 4. PAY-IN SLIPS AND DRAFTS (INDIAN AND FOREIGN CURRENCY) A critical part of operating a banking account and doing financial transactions is to deposit money into a bank account. You would be required to deposit money into your own account or into the bank account of other people. Depositing money requires the use of ‘pay-in slips’ at banks. Carrying out financial transactions also requires sending ‘demand drafts’ or ‘bankers cheques’ as a means of payment for many transactions. These financial instruments are a means of guaranteed payment with the added benefit of being more secure than cash payments.
Objectives After going through this lesson you will know how to identify a pay-in slip and deposit cash or cheques into a bank account using the pay-in slip. You will learn about the various sections of a cheque and of the pay-in slip and the details to fill in these sections. You will also learn how to get a demand draft prepared at a bank by filling in the required form for demand draft. You will know the difference between a Rupee demand draft and a foreign currency demand draft.
Introduction You would have learnt that the purpose of existence of banks is to enable and financial transactions for personal or business purposes. You would also have learnt that there are different types of accounts that can be opened in a bank, viz. savings and current accounts. The very first or basic transaction that takes place in these accounts is to deposit money into the account. Money can be deposited into the account in the form of currency or cheques. When you deposit the money, the bank must know to which account the money has to be credited to. It also needs to keep a record of the transactions of money deposited for audit and reconciliation purposes.
All banks use a ‘pay-in slip’ for the above purpose of identifying the account the money is to be deposited (in the form of currency, cheque or demand draft) Banks also make financial transactions simple and secure or safe through some specific financial instruments, one such instrument is a demand draft, also called just a ‘draft’ for short. A draft is equivalent to currency but with the added security that it can be deposited only into the bank account whose name is identified on the draft. The draft also has the advantage that the person or organization to whom the draft is payable does not have to pay for the fees or charges to transfer the amount from any branch in any part of the country or world. The fees or charges for preparing the draft having been paid by the person or entity that got the draft prepared. As mentioned above this lesson will explain the details of a pay-in slip, its use and important points to consider while filling one. This lesson also covers the preparation of a ‘draft’, either in Indian rupees for accounts in Indian banks or payable to bank accounts in foreign countries and the money payable at these accounts.
What is a Pay-in-Slip? Definition - An instruction format used to deposit Cheque / cash into an account at the bank A pay-in slip is nothing but a format which instructs the bank to perform either of the below transactions:
Deposit a Cheque or a Demand Draft Deposit Cash in an account. It is a pre-printed format available at any bank which one has to fill up mandatorily while performing any of the above transactions. A sample pay-in slip is shown below. This slip has two components, each requiring same information to be filled in. one of these is called a counterfoil that has to be retained by the depositor as a proof of having deposited the cheque or cash. The other part of pay-in slip is kept with the bank for identifying the payee and for audit trail purposes.
Some banks also use two identical slips, with a carbon paper in between. One such pay-in slip is shown below. The Main components of a pay-in-slip 1
1. A/c holder name 2. Account no. 3. Amount in words 4. Date of deposit 5. Contact No. 6. Amount in figures 7. Denominations for cash deposit 8. Cheque / DD no. 9. Name of issuer 10. Sign of banker 11. City of bank of issuer of Cheque / DD 12. Sign of depositor 13. Bank name & branch 3
Self-Check Questions 1. What is the purpose of a pay-in slip? 2. List four information that need to be penned in a pay-in slip
Why is a Pay-in-Slip Required? Any transaction is incomplete if a record of the same is not maintained. Similarly the two main transactions that are carried out at the banks are deposition of cheque and deposition of cash. In both these cases the cheque / cash go away from the bank. When you deposit a cheque, it is sent to and kept by the issuing bank. When you deposit cash, it is mixed with other cash. But because, the transaction needs to be recorded and maintained in records, hence the pay-in-slip becomes a necessity. To Deposit Cheque A very important use of pay-in-slip is when a cheque is to be deposited in an account. The parties involved in this entire process are: Drawer: The person who issues the cheque Drawee Bank: The issuing bank, bank of the drawer Payee: The beneficiary of the instrument Payee Bank: The receiving bank A cheque hence is an instrument which is issued by one person to another, on a certain date, ordering his bank to pay the other person a certain sum of money. When a cheque is issued, it is an instruction given to issuing bank to pay the beneficiary. When the cheque is deposited with a pay-in-slip by the beneficiary to his bank, it is an instruction to collect a certain sum of money from a certain account held at another bank. Hence, the issuer issues a cheque and the beneficiary submits the same along with the pay-in-slip Also, a pay-in-slip must be filled in duplicate, i.e. an acknowledgement copy must always we kept by the depositor. Some banks require the depositor to fill in the deposit slip in duplicate. Some banks offer self carbonating pay-in-slips where a duplicate copy gets made automatically, while some banks have a pay-in-slip in which the left hand portion is to be kept by the depositor after tearing it off from the main body and the right hand portion is deposited along with the cheque.
A pay-in-slip for depositing a cheque
While depositing pay-in-slip ensure that the same is well pinned up with the cheque. Avoid stapling the pay-in-slip since during the course of clearing the pin needs to be removed and in case of stapler it is pulled off creating a great chance for the cheque to be torn off while doing so. In case if required for records, banks also give acknowledgement of the payin-slip when deposited with the cheque by stamping the customers acknowledgement copy and signing it with date of receipt. While depositing pay-in-slip always ensure that you deposit it in the right box. Banks at times have different boxes for different types of cheques. Always mention your contact number on the pay-in-slip so that in case of any discrepancy you can be easily contacted. Also remember to put the proper date on the pay-in-slip Though it is always advisable for information to be correct on the pay-in-slip and must tally with the cheque, in case you have filled something wrong on the pay-in-slip the transaction shall not be held back but executed by taking your confirmation.
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Some of the important fields that one has to fill in the pay-in slip are: Name of A/c holder Account no. Date Amount in words 5
• • • • • • •
Amount in figures Name of issuing bank Branch & City Cheque no. Name of issuer Signature of depositor Contact no. Components of a cheque
Cash Deposit Another important use of a pay-in slip is for depositing cash. A filled in pay-inslip for depositing cash is shown below:
Usually the same pay-in-slip format is used for depositing either cash or cheque. We fill the information in the relevant space provided. All other fields remain the same. While depositing cash we give a break up of the denominations we are depositing. The denominations break up and the grand total must always match with amount in words and figures. The cashier / teller receives the cash, counts it, verifies it with the denominations mentioned and posts the transaction to the beneficiary account. It is always best that you fill an acknowledgement copy since the original copy is retained by the bank to verify entries at the end of the day. When the acknowledgement copy is filled, the teller stamps it with his signature and mentions the amount. This copy is ideally maintained by you and cross verified when you receive the account statement at the end of the month / quarter.
Self-Check Questions 3. Can you define these terms? Drawer, Drawee, Payee, Payee Bank? 4. What are the important parts of a cheque that need to be filled in a pay-in slip? 5. While depositing cash using the pay-in slip, how does the bank acknowledge receiving the cash? 6. The amount to be deposited is mentioned in the pay-in slip in what two formats or types?
Important Checks while filling a Pay-in-Slip
Depositing A Cheque 1 Have you written your account no. Have you Written the name as it appears in 2 the account no.
CHECKLIST Tick Depositing A Cash ( ) 12 Denominations of cash mentioned
3 Have you written Amount in words & figures 4 5 6 7 8
Amount in words & Figures are the same Mentioned the date Mentioned your contact no. No cutting / over wrtiting Cheque details written Issuing Bank, Branch & City Issuers Name Cheque No.(6 digits) Confirm that the date of issuance of cheque 9 is not more than 6 months old 10 Have you signed the pay-in slip 11 Duplicate copy filled for your record
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13 Receiving from banker taken
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( Mentions the date of reciept ( Mentions the amount reciept ( Has signature of the banker (
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Drafts The sections below make you aware of Demand Drafts, how, where and why to use them.
What is a Draft? Definition – An Instruction issued by a bank, on behalf of its customer, to another bank, requesting to pay the beneficiary a certain amount of money When we do any transaction there are always two parties involved – the buyer and the seller. Today, business is expanding very fast and transactions happen across geographical boundaries, e.g. over internet. Gone are the days when the buyer and seller were located in the same market and knew each other and their background. With globalization in place the buyer could be in India and the seller could be in Argentina. This calls for a great emphasis on the trust that the buyer and seller need to have for the transaction Buyer Would want the goods first and payment later Seller Would want the payment first and then dispatch goods.
The modes through which buyer can pay to the seller are: Through Cash – Seller located in far away country, the option gets knocked off, even sellers in India prefer taking cash since it makes accounting easy.
Through Cheque â€“ Fears exist in the mind of the seller o Cheque might be incorrect o Buyer might not have the funds o The buyer could stop the cheque payment Hence to ensure that the payment being received is not in cash and in cheque, confirming that funds would be 100 per cent available, the seller asks the buyer to submit a draft. A demand draft is an instrument which is issued by the bank, on behalf of the buyer confirming to the seller that the payment made shall be duly honored by the bank. A demand draft is like a cheque issued by the bank which it is duty bound to honour. A demand draft is also called a bankers cheque. When the buyer requests for a draft, the bank debits the account of the buyer (or takes money upfront in the form of cash from the buyer) and keeps these funds against the issue of the draft. Now when the seller presents the draft for clearing the same shall be 100 per cent honored. Hence as demand draft assures the seller that the buyer when pays through a demand draft, the payment shall not get dishonored since a bank is a reliable institution and shall issue a draft only after receipt of the funds from the buyer.
A blank DD Form
A Filled up DD Form
Self-Check Questions 7. List two ways a demand draft is better than a cheque 8. Where can you get a demand draft prepared? Can you prepare a demand draft yourself like a cheque? 9. Does the bank prepare a demand draft free of charge? 10. Who does the bank charge for preparing a demand draft, the requestor or the beneficiary? 11. Do you have to fill in a form to get a draft prepared? 12. Are demand drafts and bankers cheques same?
Making a demand draft â€“ points to remember When we go to make a demand draft we generally are confronted with three words: Demand draft, Bankers Cheque & Managers Cheque. Demand Draft & Bankers Cheques are requested when the payment has to be made in a different city.
Manager’s cheque is requested to be made in case the payment is to be made locally. The important fields are: • • • • • • • • • • • •
Date Branch of issuance DD-BC / MC Location to be made for Beneficiary Name Amount in words Amount in figures Cheque no. of buyers a/c Bank Account No. of buyer Name of buyer Signature of buyer Address of buyer
Checklist for Making a Demand Draft Checklist for making a Demand Draft Sr. No. Parameter Fund your account from which DD to be issued 1 In case of cash, get the amount with you 2 Choose whether a DD / MC 3 Mention beneficiary account name correctly 4 Mention the location for issuance 5 Mention the date 6 Mention your cheque no. through which you shall debit your 7 account Mention the cash denominations in case of issuance through 8 cash Mention you’re a/c no. from which the draft is to be made 9 Words & figures of amount to tally 10 Sign the form 11 Ensure the cheque issued is a/c payee 12 Ensure the Draft received is rightly signed by the bank officials 13 Ensure that the signature bears a signature code with it 14 Ensure the beneficiary name is correctly typed 15 Ensure the location requested for is correctly mentioned 16
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Requirement for a Foreign Draft As mentioned earlier, a foreign transaction would involve both the buyer and the seller not knowing each other. As explained before surety in the transaction is achieved through a demand draft, since when the buyer
requests the bank to issue the payment for a seller in e.g. USA the bank shall ensure that it debits the buyers account and keeps the payment ready for the seller when he puts the draft under clearing through his banker in the USA. However a demand draft in the case of foreign bank is slightly more difficult to make since the transaction involves cross border payment. In such transactions the bank doesn’t have branch and so has tie-ups with correspondent banks in other countries to issue the draft on. The bank uses their cheque stationery to issue the draft. The foreign drafts are not issued country specific, but they are issued currency specific. Hence, it becomes important for the buyer to confirm if the banker has got the facility to issue foreign Demand Drafts in the desired currency. Most preferred currencies for making international payments are US Dollar, Euro, Pound, Canadian Dollar, Singapore Dollar, Japanese Yen & Australian Dollar. Banks also use specific abbreviations of these currencies. INR for Indian Rupee, USD or US$ for US Dollar, GBP for British Pound and EUR for Euros. We need to also remember, while making a demand draft for international payment, that the funds move out of the country. Certain restrictions are levied by the Reserve Bank of India (RBI), which is the supreme banking authority in India, which limit the scope and amount which can be transferred.
Self Check Questions 13. What is the difference between a ‘banker’s cheque’ or demand draft and a ‘manager’s cheque’? 14. Why would you be required to prepare a foreign draft? 15. Is a foreign draft is issued specific to a country or to a currency? 16. if a bank does not have a branch in any country, how does it ensure a foreign draft is honoured and can be cashed? 17. Which is the supreme banking authority in India?
Demand Draft made by an Individual for an Individual
a. b. c. d.
Fill the request form Input the details of beneficiary You must have with you the bank name and address of the beneficiary The amount in foreign currency multiplied by the days exchange rate must be there available in your account e. The purpose of the transaction must be clear to you f. For the identified purpose choose the correct code from form A2 g. Along with the form always attach a form A2 13
h. If subscribing / applying for education, carry a copy of advertisement which mentions the details of the international payment required Foreign Demand Draft Request
Documentation / Limits for issuance per calendar year per A/c holder
Form A2 continued……
Self Check Questions 18. What is the form number that you must attach to get a foreign draft prepared for an individual? 19. if you are applying for a draft for a foreign education, what additional documentation you should attach while requesting for the draft?
4.10 Important fields to be filled while making a foreign Demand Draft Checklist for making a Foreign Demand Draft Sr. No. Parameter Fund your account from which DD to be issued 1 Foreign DD issued in cash upto INR 50,000/2 Mention Correct code which matches your purpose of 3 transaction Mention beneficiary account name correctly 4 Mention beneficiary bank name & address 5 Check - Amount of txn. Within limits specified by RBI 6 Mention your cheque no. through which you shall debit your 7 account Check the currency rate for the day 8 Choose the right currency 9 Take an acknowledgement of receipt of the DD request 10 Sign the form 11 Ensure the cheque issued is a/c payee 12 Ensure the Draft received is rightly signed by the bank officials 13 Ensure that the signature bears a signature code with it 14 Ensure the beneficiary name is correctly typed 15 Ensure the location requested for is correctly mentioned 16
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4.11 Assignments 4.11.1 Class assignments 1. 2. 3. 4.
Describe what is pay-in-slip and its various uses in 100 words? What are the important checks you shall exercise while filling up a pay-in slip? List 3 advantages of a demand draft List all the information to be filled in while depositing a cheque using a pay-in slip
4.11.2 Home assignments 1. Visit 2 banks near your house and collect the following forms o Cash / Cheque pay-in slip o Draft requisition form o Foreign draft requisition form 2. Fill a deposit slip if you have to deposit below received cash : o 50,000/- in notes of 500 o 20,000/- in notes of 100 o 10,000/- in notes of 50 o 10,000/- in notes of 10 o 9,000/- in notes of 1000 o 500/- in coins of 5 each o 400/- in notes of 5 each o 100/- in 1 rupee coins 3. You have to apply for a college at Pune, “The Faculty of Management Studies, Pune” and you have to make them a payment for the prospectus for INR 500/-. The college has an account only in Mumbai. Make a DD for the situation. 4. You have to make a foreign DD in USD for USD 500 and today’s exchange rate is 45.86, what amount shall be required in INR for making the DD
4.12 Summing Up In this lesson you have learnt the use of a pay-in slip to deposit cash, cheque or demand draft into a bank account. You have learnt the importance of writing accurate information about the details of currency being deposited or details of the cheque being deposited. You have also learnt that to do financial transactions you will sometimes need to send a demand draft or banker’s cheque. The demand draft can be submitted in Indian currency for use at Indian banks or in foreign currency. A demand draft is a more secure form of payment as compared to a cheque. A demand draft guarantees payment on presentation. You would also be required to fill specific forms to get a demand draft prepared.
4.13 Answers to Self-Check Questions 1. A pay-in slip is used to deposit currency, cheque or a demand draft into your bank account 2. for a cheque – cheque number, date, bank drawn on, amount 3. Drawer = one who writes the cheque, Drawee, Payee, Payee Bank. Drawer: The person who issues the cheque 19
Drawee Bank: The issuing bank, bank of the drawer Payee: The beneficiary of the instrument Payee Bank: The receiving bank 4. Same as answer to question 2 above 5. By stamping the counterfoil or duplicate copy of pay-in slip 6. In words and in Figures (numbers) 7. A demand draft is more secure and guarantees payment 8. A demand draft can be prepared in a and by a bank only 9. No, a bank charges Commission or fees for preparing a draft 10. The requestor 11. Yes 12. Yes 13. A Bankerâ€™s Cheque can be deposited in any city in the country. A Managerâ€™s Cheque can be deposited only in the same city 14. To make a secure or guaranteed payment to a party in a foreign country since many times these two parties do not know each other. 15. Issues specific to a Currency 16. A bank has tie-ups with several foreign banks in different countries to honour the demand draft 17. Reserve Bank of India (RBI). RBI issues the currency and makes the banking rules in India 18. Form A2 19. A copy of the advertisement for the education institution
4.14 Terminal Questions 1. 2. 3. 4. 5. 6.
When is a pay-in slip used? Can pay-in-slip be deposited with out an account number? Who makes a Cheque? A bank or an account holder? Who needs to fill in a pay-in-slip? List 5 common places you find use of demand draft Are the formalities for local and foreign demand draft making same? List one difference
7. What are the important checks you shall exercise while filling up a pay-in slip? 8. List 3 advantages of a demand draft
4.15 Glossary • •
• • • • • •
Pay-in-Slip: An instruction format used to deposit Cheque / cash into an account at the bank Cheque: A cheque hence is an instrument which is issued by one person to another, on a certain date, ordering his bank to pay the other person a certain sum of money Drawer: The person who issues the cheque Drawee Bank: The issuing bank, bank of the drawer Payee: The beneficiary of the instrument Payee Bank: The receiving bank Draft: An Instruction issued by a bank, on behalf of its customer, to another bank, requesting to pay the beneficiary a certain amount of money Manager’s cheque: A sort of draft issued when the payment is to be made locally