Clearing Cheques

Most bank customers have heard about cleared balances but very few bank customers know exactly how cheques are cleared. However all customers, large and small, have a right to expect money to be credited to their account as soon as the cheques paid in have cleared.

Cheques credited to the account at the proper time reduce the size of the overdraft. The cheque clearing mechanism in England and Wales is managed by the Cheque and Credit Clearing Company Limited, under the umbrella of APACS (the Association for Payment Clearing Services). All banks use APACS either as full members or through full members. Each is responsible for processing cheques drawn by or credited to accounts of its customers. On an average day over 8 million cheques are cleared.

The timetables and standards employed in the clearing process, as well as the arrangements for the daily exchange of items and settlement of obligations between the member institutions, are laid down by the Board of the Company.

The cheque clearing operates on a three-day cycle. This means that a cheque paid in to any branch of a Member bank anywhere in England and Wales during the course of business on, say, a Monday will be processed by the collecting bank on Monday evening and exchanged in London on Tuesday morning. Following further processing by the paying bank it will be sent to the address on which it is drawn by the Wednesday morning. Settlement between the Members, for the values of the cheques exchanged between them takes place over their Bank of England accounts during Wednesday.

This is how the cheque clearing system works.

Monday

A customer pays a cheque for £130, drawn on HSBC Bank-Skegness(the paying bank), into a Natwest account held at Coulsdon (the collecting bank) and Natwest will post a credit to the customer's account. This does not really mean that the cleared balance is credited. The appearance of the credit on this day only serves as a record indicating that the cheque was received. During the course of the day this cheque will be processed by the Natwest bank and prepared for sending to their Clearing Centre. This preparation will include encoding the amount of the cheque in magnetic characters in the codeline at the bottom of the cheque. Sometimes they may undertake the initial processing of cheques at district processing centres which handle the work of a number of branches, rather than on the branch premises. However, the outcome is the same, i.e. the cheques are ready for delivery to the Clearing Centre by early evening.

Tuesday

The cheque is delivered to Natwest Clearing Centre in the early hours of Tuesday morning. At the Clearing Centre the cheque is processed by high speed reader sorters, computer controlled machines which read the magnetic information at the bottom of the cheques and sort them in order of banks upon which they are drawn. The sorted cheques are then boxed up and taken from the collecting bank’s Clearing Centre to, the Clearing Exchange Centre, where they are exchanged. Natwest will hand over all the cheques they have collected, drawn upon the other members, and all the cheques drawn upon Midland. The HSBC cheque paid in at Natwest Coulsdon is now in the hands of HSBC Bank. Using their reader sorters HSBC will now: i)Verify the volume and value of cheques received from Natwest. ii)Sort the cheques and prepare them for delivery to the address on which they are drawn. The cheques are then packed ready for collection by a courier company who will deliver them to individual branches before they open for business the next working day-

Wednesday

The cheque from the HSBC Clearing Centre will be delivered to HSBC Skegness in the early hours of the morning. The branch staff will during the course of the day review the cheques presented for payment and make decisions regarding their fate i.e. to pay, or return for whatever reason. The decision will be based upon a range of factors related to branch knowledge of the customer. Also on the Wednesday the Banks will agree between themselves the values of cheques exchanged the previous day. Settlement, on a net basis, is then made across Members' accounts at the Bank of England during the day.