The cheque clearance cycle

The processing, or clearing, of cheques in Great Britain is managed by the Cheque and Credit Clearing Company Limited. When a customer takes a cheque that they have received to the bank, it takes three days for the cheque to be cleared and the money made available to the customer to spend. The process of clearing a cheque is outlined below.

SNOOKER TABLE 6x4 ft,
excellent condition, less than a year old,
cues, scorer and balls included. £35.
Contact Mr. Jones: 01244 232987

David finds a snooker table advertised as a private sale in the local newspaper, David and his Dad, Mr Williams, visit Mr Jones and purchase the table

Day 1

• Mr. Williams writes out a cheque and gives it to Mr. Jones in payment for the snooker table.
• That afternoon Mr. Jones pays the cheque into his bank.
• The bank prints the amount onto the bottom of the cheque (in this case £35).
• That evening the cheque is passed to the bank’s local clearing house.
• The cheque is scanned and data is passed electronically over a secure data network (called the Inter Band Data Exchange, IBDE) to the paying bank clearing centre in this case Mr Williams’ bank.
• (Mr Jones’ bank balance will increase by £35 but he will not be able to spend this money until the cheque has been cleared.)

Day 2

• Mr. Williams’ cheque is taken from the local clearing centre to the central exchange centre together with the other cheques. (Here all the cheques are swapped ready to be returned to their original banks.)
• Mr. Williams’ cheque is collected and taken back to his bank’s clearing house.

Day 3

• The bank staff look at all the cheques that have been presented for payment. They decide whether to pay the money or not. If the bank decides not to pay a cheque, it is returned and the cheque is said to have ‘bounced’.
• If Mr.. Williams’ bank agrees to pay the cheque then £35 will be deducted from Mr. Williams’ account.
• The £35, plus any money from other cheques that is owed to Mr. Jones bank by Mr. Williams’ bank is added up and sent electronically to the Bank of England. The same is done at Mr. Jones’ bank for money owing to Mr. Williams’ bank. Then, the difference, or the net value, is transferred electronically through the Bank of England.
• Mr. Jones’ bank now clears his money so that he can spend the £35.

As you can see, processing a cheque, or rather nine million cheques a day, is quite a complex operation. All the cheques are sorted by computer using magnetic ink character recognition on the bank sort code, with all the cheques being returned by road and rail to the local clearing houses.

© LEV