How Do Cheques Clear?

Last Updated
September 3, 2010

Introduction

Although Cheques are less popular now than in the 1990′s, they are still used by many thousands of businesses every day to settle payments; as well as by many thousands of the public to buy goods and services.

While over 99% of cheques clear successfully, there are still over 30,000 which bounce every single day.

Each bounced cheque you receive costs you money, as well as creating a gap and uncertainty in your cashflow. If you keep getting bounced cheques, it could also point to flaws in your credit policy and credit control.

The group set up to manage cheque handling is called APACS, and they provide information on the clearance systems; which we have summarized for you below. You can use this to help ensure that you give cheques the appropriate amount of time to clear.

Day One

The cheque is paid into the bank, and is usually processed by the bank that evening. At the collecting bank’s clearance centre the cheque information is passed through a secure electronic exchange to the paying bank’s clearance centre.

Day Two

The cheque is delivered to an exchange centre, where each banks delivers cheques they have received, and collects cheques drawn from their accounts.

Day Three

In the morning, bank staff review the cheques presented for payment and decide whether to pay them or return them. Before the end of the day each bank settles the amounts that they owe each other for the total value of cheques.

Bounces

Cheques that are not honoured (bounced) are sent back to the bank by first class post on the third (sometimes the fourth) day. This means that the earliest a bank will know about a bounced cheque is day 4. If there are postal delays this could be even longer; although bounced cheques over £500 will be notified to the collecting bank before 12pm on the fourth day. Be aware that in the event of fraud or deception, a cheque can be withdrawn at almost any time even if it has passed the normal clearing system.

Access

The amount of time it takes for you to be able to access the money from a cheque varies according to the bank or institution. Most will be 4-5 days, once they know it has probably cleared the system; but some may offer quicker withdrawal terms to reliable customers. There are also two other forms of cheque payment that you may wish to consider, details of these are as follows:

Bankers Drafts

Bankers’ Draft’s are similar to cheques, except that the amount is debited from the account before the draft is issued; meaning it is certain to be paid. Drafts go through the clearing system in the same way as normal cheques. They provide better security as they are very unlikely to be returned (as the money has already been deducted from the paying account). However, bankers’ drafts are not risk free; they still carry the same risk of being lost, stolen, or used fraudulently. If this happens, a draft will be rejected in exactly the same way as a cheque.

Special Clearance

A special clearance is where the bank sends the cheque directly to the paying bank, and they are contacted on the following day to confirm that it will be paid. You are likely to receive payment at about the same time, but you can be sure that the money will not be withdrawn afterwards. As with other cheques, if found to be fraudulent or stolen; special clearance cheques can still be rejected even after they have cleared. Recent banking changes may have changed timings check with your bank.

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