Introduction
This booklet has been produced by APACS and the Cheque and Credit Clearing Company to clarify issues about cheques including the clearing cycle, trends in the use of cheques and the UK Domestic Cheque Guarantee Card Scheme.You can download further copies of this booklet from: www.apacs.org.uk or www.chequeandcredit.co.uk APACS is the trade body that gives banks, building societies* and card companies a forum where they can work together on noncompetitive issues.APACS helps manage the way that businesses and individuals in the UK move their money around this covers cheques, cash, credit and debit cards and automated payments such as direct debits, salary payments and online/phone transactions. The Cheque and Credit Clearing Company is a membership-based industry body with twelve settlement members.The company manages the cheque clearing system in Great Britain, which processes cheques, bankers drafts, building society cheques, postal orders, warrants and government payable orders. Its wider remit includes the management of the systems for clearing paper bank giro credits and euro-denominated cheques. In Northern Ireland, the processing of cheque and paper credit payments is managed by the Belfast Bankers Clearing Committee.
*When we talk about banks in this booklet, we include building societies in the same term, as banks and building societies use the same central system for clearing cheques.
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What are cheques? History The 2-4-6 and 2-6-6 changes Maximum 2-4-6 clearing times 2-4-6 FAQs The cheque clearing cycle UK Domestic Cheque Guarantee Card Scheme
Cheques are written orders from account holders instructing their banks to pay specified sums of money to named beneficiaries.They are not legal tender but are legal documents and their use is governed by the Bills of Exchange Act 1882, and the Cheques Acts of 1957 and 1992. The cheque evolved over many years, with the earliest handwritten cheque known to be in existence dated 16 February 1659. Fully-printed cheques were introduced in the early 1700s, with the first personalised printed cheques produced in 1810.The daily cheque clearings began around 1770 when bank clerks met at the Five Bells (a tavern in Lombard Street in the City of London) to exchange all their cheques in one place and settle the balances in cash.The renting of a room for this purpose first occurred in 1773. Following the formation of a permanent committee of bankers in 1821 to regulate the clearings (later known as the Committee of London Clearing Bankers), the first clearing house building, initially owned by a group of private bankers, was built in Lombard Street in 1833.Although there were various changes in membership, and settlement in cash was replaced by settlement across accounts held at the Bank of England, this arrangement continued for 150 years until the Cheque and Credit Clearing Company was established in 1985.The Lombard Street clearing house closed in 1994 and the English exchange centre moved to Alie Street in east London.The Scottish clearing
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became part of the Cheque and Credit Clearing Company in 1996 bringing with it a Scottish exchange centre.At the end of 2003, the English exchange centre moved outside London. Sterling cheque settlement still takes place at the Bank of England. Cheque use increased greatly over the years and peaked in 1990, when 4 billion personal cheques were processed. Since 1990, cheque volumes have gradually declined due to the growth of alternative ways to pay. Personal cheque use has halved in the last ten years, with just 1 billion being written in 2006. Businesses and consumers have increasingly chosen to pay bills by direct debit and to use plastic cards to pay for goods and services, whilst many large retailers have taken the decision to stop accepting cheques.This trend is set to continue, with personal cheque volumes predicted to drop a further 60% to 392 million by 2016. Despite this trend, the industry is committed to maintaining the quality and integrity of cheque clearing and to ensure a high level of customer service and transparency.
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There is often confusion about how the clearing system works and the time it takes for a cheque to clear. In November 2007, changes were introduced to increase clarity and certainty for all elements of the UK sterling cheque clearing process.These changes apply to customers paying in UK sterling cheques issued by or deposited in to sterling accounts with UK banks and building societies.These are sometimes referred to as the 2-4-6 and 2-6-6 changes to cheque clearing processes.The 2-4-6 changes have been implemented for sterling current and basic bank accounts (see diagram opposite) whilst the 2-6-6 changes have been implemented for UK sterling savings accounts.The changes dont alter the central process (described on page 10). However, for customers it means for the first time after paying in such cheques they can be sure at the end of six working days that the money is theirs.After this point, the customer is protected from loss if the cheque subsequently bounces and the money cannot be reclaimed without their consent unless they are a knowing party to a fraud. The changes also set maximum timescales for when customers will start earning interest on the money paid in to their accounts and when it will be available for withdrawal. These are only the maximum timescales individual banks may compete on when they will pay interest or allow funds from the cheque paid in to be withdrawn, so customers should make sure they have an account best suited to their needs.
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Example Simon pays in a cheque to his current account at his bank on Monday morning. He starts to earn interest on the money by Wednesday (+2 days), and by Friday morning (+4 days) his bank will enable him to withdraw the money from the cheque from his account, even though the cheque could still bounce. By the end of the following Tuesday (+6 days), he can be certain that the cheque he was given will not bounce and the money from the cheque is his.
Footnotes: 1 You can pay in a cheque in a number of ways across a branch counter, at a cash machine, by post or at a post office.This may affect when your bank actually receives the cheque. You may also need to deposit a cheque before a certain cut-off time, so if certainty is important to you, you should check with your bank. 2 If your account pays interest on credit balances. It is also the point at which this money will reduce the balance on which overdraft interest is charged. 3 Not necessarily for savings accounts. 4 You will be able to withdraw this money from your savings account if the account allows withdrawals.This table sets out the maximum cheque clearing timescales.Your bank may offer you shorter timescales. Check your terms and conditions. Be wary of accepting high value cheques from someone unless you know and trust them. If you are uncertain about the status of a cheque you should check with your bank.
0
Day
2
Day
4
Day
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Customers may deposit (i.e. pay in) a cheque in to their account by a variety of means: at a branch counter, through a cash machine or other accepting machine, at a post office or by post. Every bank will make clear to the customer the day a cheque is considered to have been deposited for the purposes of calculating the elapsed time before interest is paid, withdrawal allowed and the certainty that the cheque will not be returned unpaid to the beneficiary customer.
2-4-6 FAQs
Do the 2-4-6 changes mean that cheques are safer from fraud?
No, you should always be wary of accepting high-value cheques or bankers drafts. If you dont know or trust the person offering you a cheque, you should consider other options such as a CHAPS payment, a telephone or internet payment or cash.Ask your bank for advice if youre in any doubt. If your chequebook is stolen and used by a fraudster you will continue to enjoy full protection from financial loss provided you havent breached the terms and conditions of your account.You should report a loss or theft as soon as you notice it.
I sometimes pay in cheques at a post office or send them by post. How will I know when my bank has got my cheque and the timescales start?
These timescales will be clarified by your bank. If the certainty of a cheque is important, you should ask.
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How do I know when the sixth day after deposit has been reached? Do the six days exclude non-working days?
If you are uncertain, you should check with your bank. Saturdays, Sundays and bank holidays are not included within any calculation of the six day period.
Do the 2-4-6 and 2-6-6 changes to cheque clearing processes apply to all banks and building societies and all cheques in all situations?
All subscribers to The Banking Code have committed to implementing these changes and maximum timescales for their customers. In exceptional situations, should they be unable to deliver on the timescales, they will explain the reason why.
What happens if I dont wait until the end of day 6 and I decide to withdraw and spend cheque funds before this?
You must be aware that you do so at your own risk and if the cheque subsequently bounces you may have to return funds to your bank.
Do the 2-4-6 changes impact when I can or should release goods or services to my clients?
It may do as these changes will give you certainty on cheque funds and clarify when you can be sure the cheque funds are yours and when you can release goods or services with confidence.
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Why dont the same timescales for clearing apply to savings accounts?
Savings accounts are designed to pay interest on funds deposited for a length of time, and frequency of payments to and from these accounts is generally less.These features allow customers to benefit from a higher rate of interest. If you want faster access to cheque funds you should consider paying a cheque in to a current account or basic bank account.The timescales on saving accounts for earning interest and knowing the money is yours still apply.
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Why dont all banks allow access to funds on the same day?
The industry has now set maximum timescales but this does not prevent banks beating those timescales with their own competitive offerings. Under The Banking Code, banks are required to provide clear details of their policies.
What advice would you offer to customers who are inconvenienced by the time taken to access cheque funds?
If speed is important you should consider being paid in some other way. If youre a customer who receives a lot of cheques you should ensure you have an account which best suits your needs. Some accounts allow early access to funds from cheques, possibly as early as the day you pay your cheque in. However, you should be aware that if a cheque were to be returned unpaid after funds have been withdrawn and before the end of the 6th working day after paying in, then the bank would seek reimbursement from you.
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The way in which the clearing cycle works is explained below.This example is based on a customer paying a UK sterling cheque issued by a UK bank in to their UK current account at their branch counter and the account is one where the 2-4-6 maximum timescales apply. Day 0 Paying in a cheque In this example, Mr Smith (whose account is with the paying bank) has written a sterling cheque payable to Miss Jones who pays it in to her sterling current account at her branch (the collecting bank) on Monday. Her bank will apply the funds to her account and update their records that day (some banks apply funds and update their records later). So the money will show as an entry on her account, but in this example that does not mean that she will start earning interest or that she can withdraw the funds straightaway. At the end of each working day (the central clearing system does not operate on Saturdays, Sundays and bank holidays) all the cheques that have been paid in to the various branches of a bank are sent to its clearing centre. So the cheque paid in by Miss Jones is sent to her banks clearing centre, arriving late Monday night or early on Tuesday morning or day 1.
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At the clearing centres the cheques are sorted.The sort code, account number and serial number are captured from the codeline at the bottom of the cheque and these, together with the amount of the cheque, are sent electronically to the bank on which the cheque is drawn (the paying bank i.e. Mr Smiths bank) on Tuesday morning (day 1). The physical cheque is then bundled up with all other cheques drawn on accounts at Mr Smiths bank and handed over to his bank (the paying bank) at one of the exchange centres in England or Scotland later on that morning. If the cheque was drawn on a bank in Northern Ireland it would be sent to Northern Ireland for local processing. Day 2 earning interest / reducing overdraft interest At this point, on Wednesday morning, Miss Jones will have started to earn interest on the funds from the cheque she has deposited or, if her account is overdrawn, the balance on which overdraft interest is charged will be reduced.This part of the clearing cycle is sometimes referred to in banking as clearing for value. Also on Wednesday morning, two working days after the paying in day, Mr Smiths bank (the paying bank) debits his account with the amount of the cheque and this will show as an entry to his account on his statement and on his balance slip. From Mr Smiths perspective, the cheque has also been cleared for value, which means that funds paid by cheque stop earning credit interest or, if his account is overdrawn, increase the balance on which overdraft interest is charged.
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However, it is still possible that the cheque may bounce due to insufficient funds in Mr Smiths account, if he has forgotten to sign the cheque (or there was some other technical reason), if Mr Smith were to put a stop on the cheque or the cheque turns out to be fraudulent. It is very rare for a cheque to bounce, only about 0.5% of the cheques cleared each day are returned unpaid. If the cheque does bounce, Miss Jones bank may reclaim the money from her account up until the end of day 6. If Mr Smiths bank still decides to bounce the cheque, it will return the unpaid cheque to Miss Jones bank.This is normally done by courier. As far as the central clearing process is concerned, on Wednesday morning the Cheque and Credit Clearing Company calculates the net amount the banks must pay to or receive from each other on the basis of the value of all the cheques exchanged on the previous day.The net sterling balances are then settled across accounts held at the Bank of England.
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Day 4 withdrawing money By no later than Friday, four working days after paying in her cheque, Miss Jones bank allows her to withdraw money against the funds deposited in the cheque from Mr Smith. This is sometimes referred to in banking as clearing for withdrawal. If Miss Jones account is a savings account withdrawal may not be allowed until day 6. Day 6 certainty By the end of the following Tuesday (six working days after she has paid in the cheque) Miss Jones can be certain that the cheque funds have cleared, unless the money has already been debited from her account.This means that providing she hasnt been a knowing party to a fraud, the money is hers to keep and it cannot be reclaimed without her consent.This final part of the clearing cycle is sometimes referred to in banking as clearing for fate.
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The first cheque card was introduced in October 1965, guaranteeing payment of sterling cheques up to a value of 30.This limit was raised in 1977 to 50 and two additional limits of 100 and 250 were introduced in 1989. In July 1969 the UK Domestic Cheque Guarantee Card Scheme was established to create common, easily-identifiable design features to simplify acceptance procedures for retailers and other businesses. Since 1 October 1990 the common theme appearing on all participating cards has been the bust of William Shakespeare. Some 5 million adults currently use guaranteed cheques on a regular basis. However, this figure is expected to continue falling in line with the general trend of declining cheque use.The Scheme gives retailers greater certainty when accepting cheques. However, if the conditions of use outlined below are not met, the guarantee is void and cheques may be returned unpaid.
G G
One cheque per transaction is guaranteed up to the value limit shown on the accompanying cheque guarantee card. Cheques must be dated correctly with the actual date of issue (i.e. they must not be post-dated).
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G G G G
G G G
The cheque card number must be written on the reverse of the cheque by the payee (and not by the paying customer). Cheques must be signed by the payer (i.e. the account holder) in the presence of the payee as the guarantee is only valid in a face-to-face environment. The cheque guarantee card must be valid, i.e. it may only be used prior to reaching its expiry date and must not have been altered or defaced. When using cheques to obtain cash, customers are limited to one guaranteed cheque per day for this purpose. Cashiers use frequency-marking pages (found at the back of chequebooks) to keep a record of encashments and to ensure that the one per-day rule is adhered to. Encashed cheques must be banked no later than 3 days after the date on which the encashment service is provided. The Scheme only applies to personal cheques. The Scheme only applies to sterling cheques drawn on UK banks, for use in the UK (it also covers those issued or used in Gibraltar, the Isle of Man, and the Channel Islands).
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Facts and figures Cheque volumes Top tips for consumers and businesses Cheque fraud be on your guard! Facts & Advice
G G G G G G G G G 18
There were just over 4.9 million business and personal cheques issued each day in 2006, compared with 11 million in the peak year for cheque volumes, 1990. By 2016 there will be only 2.3 million per day. If all the cheques processed in 2006 were laid end-to-end, they would stretch almost five times round the world.This compares with eight times around in 2001 and 12 times in 1990. In 2006 each adult made 1.6 cheque payments per month, compared with 4.3 per month in 1991. Adults receive six cheques on average per year. Only 5 million adults still use guaranteed cheques on a regular basis, compared with 16 million in 1996. Women make almost 52% more guaranteed cheque payments than men. Only one in eight regular bills is paid by cheque, compared with one in three as recently as 1995. By 2016 only one in 22 of regular bills will be paid by cheque. By 2016 personal cheques will account for only 2.3% of all non-cash payments made by individuals. The average value of a personal cheque payment in 2006 was 223. Only 4% of retail spending is still paid by cheque, compared with over 60% by debit or credit card. Business cheque use peaked in 1997. Since 2001 business-to-business cheques have seen rapid decline as businesses increasingly use automated payments to pay suppliers.
Volumes (millions)
1000
2000
3000
4000
0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 *2007 *2008 *2009 *2010 *2011 *2012 *2013 *2014 *2015 *2016 2988 2859 2702 2567 2394 2251 2088 1931 1778 1658 1515 1365 1241 1158 1083 1015 952 892 840 Year *APACS estimates for cheque volumes
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Advice for personal and business customers when receiving and paying in cheques: G Cheques should be paid in to your account as soon as possible to reduce risk of loss or theft.They should always be paid in within six months, as older ones may be rejected or returned unpaid. G Never accept a cheque from someone unless you know and trust them. Be especially wary when accepting high-value cheques or bankers drafts. G Be aware that if you decide to withdraw funds or release goods before the end of the sixth day after paying in a cheque, there is a risk that the money could be reclaimed if the cheque bounces (i.e. is returned unpaid), or it turns out to be stolen or fraudulent. G Always consider other types of payment for high-value items such as an automated, phone, internet or CHAPS payment.There is a charge for a CHAPS payment but it is a guaranteed, irrevocable, same-day value payment. If the buyer is unwilling to pay the relatively small cost involved or to split it with you then you need to be on your guard. From May 2008 a new faster payments service for same day payments will be available for internet, phone and standing order payments. In some circumstances this service may provide a good alternative to cheques. G If you are a knowing party to a fraud your bank may recall funds paid in by cheque from your account at any time.
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If certainty is important, before you release your goods you should check your bank balance at the end of day 6 after paying in a cheque to ensure that it has not bounced (i.e. been returned unpaid). If you receive a cheque drawn on an overseas bank, your bank will send it back to the issuing bank for payment, as foreign cheques cannot be cleared through the UK clearings.As it can take time and be costly to obtain value for a foreign cheque, you should seek payment by a different method. If you receive a euro cheque drawn on a UK bank, your bank will be able to clear this for you through the euro cheque clearing system, but the 2-4-6 and 2-6-6 timescales do not apply. If you do not have a euro account, your bank will charge you for converting the euros into sterling when you pay the cheque in to your sterling account.
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Advice when writing and issuing cheques: G Make sure you write the name of the payee clearly and correctly.The vast majority of cheques are crossed a/c payee, which means that they must and can only be paid in to the account of the named beneficiary (i.e. the person to whom the cheque is made payable).This prevents cheques being cashed or paid in to the accounts of third parties. G If youre making a cheque payable to a bank, you must ensure that you provide sufficient details on the payee. Enter the full details for the account holder in the payee line, for example XYZ Bank, re J Jones, account number xxxxxx. In order to guard against fraud, the rules for accepting cheques at banks and building societies changed in October 2006. G Write the words clearly, starting from the left-hand side of the cheque and write the amount in figures as close to the sign as possible. G You should draw a line through all unused space so unauthorised people cannot write in extra names, change the amount in words or add extra numbers in the amount box. G Dont let your signature overlap the amount box and dont use commas or signs in the amount box. G If youre using a sterling chequebook, dont write your cheque in a foreign currency or euros.
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G G G G
Write cheques using black or blue ballpoints or pens with indelible ink. Do not fold or staple cheques. If you need to make amendments, these should be made clearly by crossing through the error and initialing or signing the correction. Never pre-sign blank cheques. When writing cheques, be sure to complete all sections, including the payee name, and the amount in both words and figures. It is also good practice to include the word only after writing the amount in words. It is advisable not to post-date a cheque. It is likely to be outside the terms and conditions of your account and it may simply be cleared as soon as it is paid in. So if there are insufficient funds in your account or you have already reached your overdraft limit, it may bounce. If you issue a cheque that is not presented within six months, do not assume that it can no longer be used. It may be cleared when presented, unless there are no funds in your account, in which case the cheque will be returned unpaid.You may wish to ask your bank to place a stop on the item (some banks may charge for this service). Keep cheque guarantee cards separate from chequebooks. If either are lost or stolen, notify your bank immediately.When a new card is received, the signature strip on the back should be signed immediately.
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To help protect your account from fraud you should report any misuse of cheques as early as possible. Use chequebook counterfoils to record details of cheques issued and compare them with bank statements.Any discrepancies should be reported to your bank immediately. Although cheques issued by UK banks can be used in Gibraltar, the Isle of Man and the Channel Islands, customers wishing to make overseas payments are advised to consult their bank about alternative payment methods.
Advice for businesses when issuing cheques Best Practice Guidelines for Users of Company Cheques are available to download from www.chequeandcredit.co.uk and www.apacs.org.uk.The guidelines include information about: G how to order chequebooks from a Cheque Printer Accreditation Scheme (CPAS) member; G tips on controlling the use of cheques such as ensuring procedures are in place for issuing cheques and reconciling bank statements; and G advice on writing company cheques to deter fraudulent alteration and the best type of printer and printing ink to use.
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Dont accept a cheque, or bankers draft, from someone unless you know and trust them. Be especially wary when accepting a high-value cheque for instance if you are selling a car. Be aware that, until a cheque has been cleared for fate at the end of the 6th day after you have paid the cheque in to your account, there is a risk that the money could be reclaimed IF the cheque turns out to be stolen, fraudulently altered or counterfeit. It is safer to ask for payment for high-value items to be made by other means an internet or phone banking payment or a CHAPS payment.There is a charge for a CHAPS payment but it is a guaranteed same-day value payment. If the buyer is unwilling to pay the relatively small cost involved or to split it with you then you really do need to be on your guard. Be aware that a bankers draft or building society cheque is not necessarily safe from fraud.They can be stolen or altered like any other cheque, and if altered, stolen or counterfeit they will not be honoured. If you receive a bankers draft in payment for goods you should wait until you have certainty of fate at the end of the 6th working day after youve paid the cheque in to your account before releasing the goods. If youre not sure when day 6 has passed you should check with your bank.
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How do cheque scams typically happen? In recent years organised gangs have targeted consumers selling high-value goods such as cars. So if youre selling a high-value item be particularly wary of accepting a cheque. If you do, you shouldnt hand over the goods until you have certainty that the cheque funds will not be reclaimed from you (this happens at the end of the 6th working day after you have paid the cheque in to your account). Typically the gangs use stolen or counterfeit cheques, they will offer a cheque or bankers draft for more than the price of the goods (as ever, anything that sounds too good to be true should set alarm bells ringing, but their excuse may sound plausible).Youre then asked to transfer the amount of the overpayment either to them or to a third party two days after you have paid the cheque in when, it is claimed, the cheque will have cleared. Of course, the cheque or draft isnt genuine and, whilst banks do all they can to spot and stop such cheques in the clearing process it is not until the end of the 6th working day after you have paid the cheque in that your bank or you can be sure that the cheque funds are certain and will not be returned unpaid to you.
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Where can I go for more advice? Always contact your bank for advice or refer to your banks terms and conditions. The Cheque and Credit Clearing Company (www.chequeandcredit.co.uk ),APACS (www.apacs.org.uk) and Metropolitan Police (www.met.police.uk) all have information and facts about cheque fraud on their websites. If youre concerned about the most suitable payment option, your bank should be able to offer you advice. What are the banks doing to protect customers from fraud? The banking industry introduced the 2-4-6 changes to sterling cheque clearing timescales for customers (see page 04) in November 2007.As a result, for the first time you can be confident that at the end of 6 days after paying in a sterling cheque or bankers draft the money is yours and you are protected from any loss even if the cheque subsequently bounces (i.e. is returned unpaid), or if it turns out to be fraudulent.The funds cant be reclaimed without your consent unless youre a knowing party to a fraud.
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What are banks doing to prevent fraud? There is a range of prevention measures at both bank and industry level.These include: G The industry sponsors its own specialist police fraud squad the Dedicated Cheque and Plastic Crime Unit (DCPCU) to target the organised gangs behind cheque fraud. G Banks are focusing on identifying lost or fraudulent cheques as they pass through the clearing system.The industry has a good track record: in 2006 more than 90% of attempted cheque fraud was spotted and stopped in the cheque clearing process. G The Cheque Printer Accreditation Scheme (CPAS) helps combat fraud by ensuring all customer chequebooks are printed to the highest security standards.All cheque printers have to be accredited by this Scheme. Security features on cheques are particularly effective in combating both counterfeit and fraudulently altered cheques. CPAS is managed by the Cheque and Credit Clearing Company.
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FAQs
Why doesnt the banking industry speed up the cheque clearing process?
Market research, undertaken in 2005 and supported by the Office of Fair Trading, confirmed that there is no case for speeding up the central clearing cycle. Only 13% of customers placed any value on faster withdrawal and some customers use the current cycle to their benefit to delay money being taken from their accounts.
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FAQs
Can a cheque be paid in to the account of someone other than the named payee?
Most cheques are crossed a/c payee which means they can only be paid in to the account of the named payee.The crossing cannot be deleted, nor can the cheque be transferred over to a third party.
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FAQs
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FAQs
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Are bankers drafts and building society cheques as good as cash? How do they work?
No, they are not as good as cash as they may have been lost or stolen and then fraudulently used. Bankers drafts and building society cheques are processed in the same way as ordinary cheques and have to go through the clearing system. So you should still wait until the end of day 6 to be certain that the money is yours.The comfort they provide is that they will not be returned unpaid due to lack of funds, as they are drawn on the account of the actual bank and are paid for in advance by the customer.
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I paid by cheque at a retailer and the funds left my account within two days. Why?
Some large retailers, by special arrangement, may pay cheques directly in to their banks clearing centre rather than in to their branch at the end of the day, effectively by-passing part of the clearing cycle.Alternatively, if both the customer and the retailer hold accounts at the same bank branch the cheque would not have to pass through the central cheque clearing. It is always important that you make sure you have sufficient funds in your account before writing a cheque.
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Glossary
Glossary
Glossary
2-4-6 and 2-6-6 changes
These changes known as 2-4-6 and 2-6-6 have been implemented by UK banks and building societies. 2-4-6 covers sterling current and basic bank accounts and business accounts. It has given customers maximum clearing timescales and increased transparency providing clarity and certainty when paying in a sterling cheque issued by a UK bank. It refers to 2, 4 and 6 working days after a cheque has been paid in to a current or basic bank account: G The start of the 2nd working day is the maximum timescale for clearing for value (see glossary). G The start of the 4th working day is the maximum timescale for clearing for withdrawal (see glossary). G The end of the 6th working day is the maximum timescale for clearing for fate (see glossary). 2-6-6 applies to sterling savings accounts. It has given customers maximum clearing timescales and increased transparency providing clarity and certainty when paying in a sterling cheque issued by a UK bank. It refers to 2, 6 and 6 working days after a cheque has been paid in to a savings account:
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G G
The start of the 2nd working day is the maximum timescale for clearing for value (see glossary). The start of the 6th working day is the maximum timescale for clearing for withdrawal (see glossary) provided withdrawals are allowed under the terms and conditions of the savings account. The end of the 6th working day is the maximum timescale for clearing for fate (see glossary).
Customers may deposit (i.e. pay in) a cheque in to their account by a variety of means: at a branch counter, for example, through a cash machine or other accepting machine, at a post office or by post. Every bank will make clear the day a cheque is considered to have been deposited for the purposes of calculating the elapsed time before interest is paid, withdrawal allowed and the certainty that the cheque will not be returned unpaid to the beneficiary customer.
automated payment
An automated payment is a payment made by electronic transfer directly in to a bank account. Internet and phone payments, as well as direct debits, direct credits and standing orders are currently processed through the automated Bacs central infrastructure. From May 2008, a new faster payments service will be launched that will offer a same day service for phone, internet and standing order payments.
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Glossary
The Banking Codes These are voluntary codes, which set standards of good practice for financial institutions
to follow when dealing with personal customers (The Banking Code) and business customers (The Business Banking Code) in the UK.They provide valuable protection for bank customers and cover such areas as basic bank accounts, current accounts, card products, lending, savings and payments, and specifically ensure transparency on the cheque clearing cycle.
bankers draft and A bankers cheque is a cheque drawn directly on the issuing bank (or building society if bankers or building it is a building society cheque) rather than on the account of a customer, and signed by a bank or building society official.A bankers draft is not strictly speaking a cheque but, society cheque
like a cheque, it is subject to the Bills of Exchange Act 1882, and is cleared in the same way as a cheque.When issuing a bankers cheque or draft, the bank will debit the ordering customers account, so that the payee can be assured that the cheque or draft will not be returned unpaid due to lack of funds.This means that, provided the cheque or draft is genuine, the recipient can be certain that funds will clear.The timescales for clearing for value, withdrawal and fate apply.
beneficiary
The person or business to whom the cheque is payable.Another term meaning the same is payee.
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beneficiary bank
The bank that provides the account for the payee of the cheque to which the cheque is deposited. Customers often use this term, whereas the bank refers to a cheque being returned unpaid. An electronic, irrevocable same-day value payment (formerly known as telegraphic transfers). The vast majority of cheques are crossed a/c payee, which means that they must be paid in to the account of the named beneficiary (i.e. the person to whom the cheque is made payable).This prevents cheques being cashed or paid in to the accounts of third parties.The issue of cheques crossed account payee is covered in the Cheques Act of 1992, Section 1 which gives statutory force to the crossing. The point at which funds from a cheque have cleared and the cheque can no longer be returned unpaid and the beneficiary can be sure the money is theirs and cannot be reclaimed from their account (unless they are a knowing party to a fraud). Conversely, the fate of a cheque may be that it is returned unpaid but the beneficiary will be able to determine if this is the case by the time clearing for fate or certainty is provided.
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bounced
CHAPS payment
Glossary
From a beneficiarys perspective the point at which funds deposited (i.e. paid in) by cheque start earning credit interest or, if the account is overdrawn, start reducing the balance on which overdraft interest is charged.Although included in the account balance and shown on the statement or cash machine slip, the funds may not yet be available to withdraw. From a cheque issuers perspective, when funds paid by cheque stop earning credit interest or, if the account is overdrawn, increase the balance on which overdraft interest is charged. When funds deposited (i.e. paid in) by cheque are available for withdrawal from the beneficiarys account (either as cash or to fund another payment from the account). The ability to withdraw is subject to the overall status of the account (e.g. the balance after the withdrawal remains within an agreed overdraft limit).Also there may be value limits on the amounts which may be withdrawn by particular methods (e.g. a daily limit on the value of cash machine withdrawals).The cheque may still bounce and the beneficiary bank may still reclaim the money from the cheque paid in until clearing for fate has been reached. Cheque number, bank sort code and account number printed along the bottom of a cheque and read electronically.
codeline data
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collecting bank
The bank where the cheque is deposited (i.e.paid in). It is often, but not necessarily, the same as the beneficiary bank. Another term meaning paid in see below. A secure electronic network used to transmit codeline and amount details of cheques from the collecting bank to the paying bank. Cheques may be deposited (i.e. paid in) to a beneficiarys own account by a variety of means: at a branch counter, through a cash machine or other accepting machine, at a post office or by post. Normally for a counter deposit the day of deposit will be the same day, if deposited before the advertised cut-off time for that counter (and the next working day if after the cut-off time). For postal deposits it will normally be the day the cheque is received by the bank. Every bank will make clear the day a cheque is considered to have been deposited for the purposes of calculating the elapsed time before value, withdrawal or fate. Glossary
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payee payer
The beneficiary of the cheque in to whose account the cheque is paid. The person or business that writes and issues the cheque, whose name is on the bottom of the cheque and whose account will be debited when the cheque is paid. The bank where the person or business who issued a cheque holds their account. If the paying bank is unwilling to pay the cheque, it will be returned unpaid to the beneficiary customer via the beneficiary bank.There are a number of reasons why this may happen. For example, there may be insufficient funds in the payers account, the cheque may be fraudulent, or it may be wrongly dated or unsigned.When a cheque is returned unpaid its value may be reclaimed from the beneficiarys account by the beneficiary bank this may be after the funds have been withdrawn by the beneficiary.
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The Cheque and Credit Clearing Company is a membership-based industry body with twelve settlement members.The company manages the cheque clearing system in Great Britain, which processes cheques, bankers drafts, building society cheques, postal orders, warrants and government payable orders. Its wider remit includes the management of the systems for clearing paper bank giro credits and euro-denominated cheques. In Northern Ireland, the processing of cheque and paper credit payments is managed by the Belfast Bankers Clearing Committee. Current settlement members of the Cheque and Credit Clearing Company can be found on www.chequeandcredit.co.uk. Each member is individually responsible for processing cheques drawn by or credited to accounts of their customers. In addition, several hundred banks and building societies provide cheque clearing facilities for their customers and they obtain indirect access to the cheque clearings by means of agency arrangements with one of the settlement members.
Glossary
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The role of the company is to: G manage, through third party suppliers, the running of both the cheque and credit exchange centres and the Inter-Bank Date Exchange (IBDE) network (across which member banks transmit electronic details from cheques); G calculate the net amounts members must settle with each other and advise the amounts to the Bank of England for settlement; G maintain the integrity of the clearing system to ensure that the central clearing process happens on time, reliably and to quality standards; and G determine the rules required to maintain integrity and ensure that participating members comply with those rules. The company also manages the Cheque Printers Accreditation Scheme (CPAS).This scheme was introduced in 1995 with the aim of tackling fraud involving company cheques.The scheme ensures that all cheques for use in the GB clearing are produced by printers accredited to the scheme, who are required to adopt stringent security standards. More information on CPAS can be found at www.chequeandcredit.co.uk. The company does not clear foreign cheques i.e. cheques drawn on overseas banks based abroad.These are processed separately on a cheque by cheque basis by the banks where they are deposited.
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Useful contacts
Enquiries about cheques and cheque clearing and APACS general enquiries:
T: 020 7711 6259 corpcomms@apacs.org.uk www.apacs.org.uk www.chequeandcredit.co.uk
Glossary
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British BankersAssociation
Pinners Hall 105-108 Old Broad Street London EC2N 1EX T: 020 7216 8800 www.bba.org.uk
Payments Council
General inquiries T: 020 7711 6200 Media inquiries T: 020 7638 5760 www.paymentscouncil.org.uk
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Copyright and intellectual property rights in this document lie with APACS (Administration) Limited It must not be copied in whole or in part without the express permission of APACS (Administration) Limited.While every effort is made to ensure the accuracy of any information or other material contained in this document, it is provided on the basis that APACS (Administration) Limited (and APACS and its members either individually or collectively) accept no responsibility for any loss, damage, cost or expense of whatsoever kind arising directly or indirectly from or in connection with the use by any person of any information or other material contained herein. Any use of the information or other material contained in this document by you shall signify agreement by you to this provision. If you do not accept these provisions then you should inform us by returning the document to us within seven days.This booklet is for information purposes only and should not be taken as a definitive legal guide.
For further information: visit www.chequeandcredit.co.uk visit www.apacs.org.uk e-mail corpcomms@apacs.org.uk call 020 7711 6259
APACS (Administration) Ltd November 2007 Mercury House,Triton Court, 14 Finsbury Square, London, EC2A 1LQ