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The guide to cheques

and the British cheque


clearing system

Cheques & Cheque


Clearing The Facts

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.

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 and
ChequeClearing

Cheques
& Clearing

02
02
04
05
06
10
14

What are
cheques?

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.

History

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

02

Cheques
& Clearing

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.

03

The 2-4-6
and 2-6-6
changes

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.

04

Day

e.g. Monday
The process starts when your bank receives the cheque 1

Day

e.g. no later than Wednesday


You start to receive interest on the money from today 2

Day

e.g. no later than Friday


Your bank will allow you to withdraw the money today 3

Day

e.g. no later than Tuesday


You can be sure the money is yours by the end of today 4

Cheques
& Clearing

Maximum 2-4-6 clearing times

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.

05

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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Cheques
& Clearing

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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How can I make sure my bank receives my cheque as quickly as possible?


The simplest way is to ensure the cheque is paid in at your bank before their advertised
cut-off times.You can pay in a cheque in a number of other ways such as at a cash
machine, by post or at a post office. However, these may all affect when your bank
actually receives the cheque and the timescale starts. If you are not sure when day 6 has
passed you should check with your bank.

Do the 2-4-6 changes affect the charges I pay on my overdraft?


You should check with your own bank. Each bank will continue to compete on when it
gives interest on cheque funds or, if the account is overdrawn, when cheque funds will
reduce the balance on which overdraft interest charged.These changes mean the latest
time you can expect this to happen is two days after you have paid in your cheque.

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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Cheques
& Clearing

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 cheque
clearing
cycle

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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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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Cheques
& Clearing

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.

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 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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Cheques
& Clearing

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.

UK Domestic
Cheque
Guarantee
Card Scheme

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

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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).

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).

Conditions of use are available from www.apacs.org.uk.

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Cheques
& Clearing

16

18
19
20
25

Facts and figures


Cheque volumes
Top tips for consumers and businesses
Cheque fraud be on your guard!
Facts
& Advice

Facts and
figures 2006

G
G
G
G
G
G
G
G
G
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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.

0
1515

1241

19

952
892
840

*2013
*2014
*2015
*2016

2251

3091

Facts
& Advice

Year *APACS estimates for cheque volumes

1083
1015

*2012

1778
1658

1365

1158

1000

*2011

*2010

*2009

*2008

*2007

2006

2567

3430

3203

2859
2702

2394

2088
1931

2000

2005

2004

2003

2002

2001

2000

1999

3728

3882

3976

3900

3559

3283

2988

3000

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

Volumes (millions)
4000

UK cheque volumes 1989 2016 (millions)

Top tips for


customers

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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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Facts
& Advice

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.

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.

22

G
G
G

23

Facts
& Advice

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.

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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Cheque
fraud be on
your guard!

25

Facts
& Advice

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.

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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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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Facts
& Advice

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 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.

28

FAQs

Frequently
Asked
Questions

Why dont cheques clear instantly?


Cheques are paper items, which are physically transferred between banks.Although the
paying bank receives some of the data electronically, the cheques themselves must also
be transferred.This is so that they can be examined by the paying bank for security and
fraud prevention purposes, to ensure that the cheque has been made out correctly and
to make the decision whether to return a cheque unpaid. Despite the central clearing
timescales individual banks may decide to allow customers to withdraw cheque funds
more quickly. However, if a cheque bounces before the end of the 6th working day after
paying in, then the bank may seek to reclaim the cheque funds.

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.

30

Can I stop a cheque?


You can request your bank to stop payment of a cheque before it makes its decision
whether or not to pay it, but it is best to do this as soon as possible after issuing it.There
may be a charge for this. If payment of the cheque was guaranteed by a cheque
guarantee card, provided all the conditions of use were met, you cannot subsequently
ask your bank to stop payment.

What is special presentation or special clearance?

FAQs

If youre the beneficiary (i.e. payee) of a cheque and you wish to know as soon as
possible whether it will be paid, you can ask your bank to present that cheque specially.
The bank then sends the cheque by first-class post directly to the paying bank,
contacting them by phone on the following working day to confirm whether it will be
paid.You may not receive the funds any sooner, but you will have the knowledge that
the cheque has been paid before the end of day 6.

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.
31

Why are retailers no longer accepting cheques?


You would need to ask those involved as the reasons may vary some have said the
decision is driven by cost and some by retailers fraud concerns. However, you can be sure
that none of them would be making this decision if they felt they would lose customers or
business and so the deciding factor must be that so few customers are using them.

Will cheques disappear completely?


The banking industry is not forecasting the demise of the cheque in all areas over
the next decade but on the high street many larger retailers have already stopped
accepting cheques. Cheques still remain popular for person-to-person payments and
person to small business payments, and for people paying credit card or utilities bills.
However, the long-term future is certainly one of further decline and over time they will
probably disappear, as they have already done in some other European countries.

What alternatives are there to cheques for consumers?


Many customers choose to use direct debits and standing orders for paying regular
bills and commitments. Credit and debit cards have, by and large, overtaken cheques
for retail purchases and CHAPS provides an electronic, irrevocable, same-day payment
system, usually for high-value payments. Phone and internet banking are also
increasingly being used to make payments and in May 2008 a new same day faster
payments service will be available that will speed up phone and internet payments.
32

What is the best way for a company to receive or make payments?


There are a number of payment options for companies, and it is important to consider
your companys needs when choosing how to accept or make a payment.With the
advent of chip and PIN, plastic cards are an extremely popular way to pay, and many
companies increasingly prefer to accept card payments to cash or cheques.You could
also consider automated payments such as direct debit, phone and internet banking.
Speak to your business adviser at your bank to find out what your options are.

Is it true that cheques are only valid for six months?

FAQs

It is common banking practice to reject cheques that are over six months old to protect
the payer, on the basis that payment may already have been made by some other
means or the cheque may have been lost or stolen. However, this is at the discretion of
individual banks. It should not be assumed that cheques in excess of six months old
would automatically be rejected the only certain way to cancel a cheque is to request
that a stop be placed on it. Cheques backed by a cheque guarantee card cannot be
stopped. It is recommended that, if possible, customers in possession of cheques that are
over six months old obtain a replacement. In case of disputes, a cheque remains legally
valid to use to prove a debt for six years.

33

Can I post-date a cheque?


Banks set their own policies on post-dated cheques and, in many cases, their account
terms and conditions state that customers should not write them. If the beneficiary of a
post-dated cheque attempts to pay it in to their account prior to the date shown, it may
be returned unpaid, possibly incurring charges for both parties, if the terms and
conditions of the account state that cheques should not be post-dated. Or it may be
cleared and paid, potentially creating problems for the customer who wrote it. Post-dated
cheques are not covered by the UK Domestic Cheque Guarantee Card Scheme and
could be returned unpaid.

I have been asked to issue a duplicate cheque.What should I do?


First, check with your bank to ensure the cheque you issued has not already been paid.
If youre happy that the cheque has not already been paid you should place a stop on
the original cheque and, if you wish, issue another cheque which the beneficiary will then
pay in.You may, of course, prefer to make payment by other means.

How much are total cheque fraud losses?


In 2006 cheque fraud in the UK amounted to 30.6 million a 24% decrease from the
2005 total of 40.3 million. Previously cheque fraud losses had been on the increase,
totalling 36 million in 2002 and 45 million in 2003.
34

Who pays for cheque fraud losses retailers, banks or customers?


This will always depend upon the facts of each case. However, any innocent customer
who has their chequebook stolen and used by a fraudster can expect to get their money
back from their bank.

How are foreign cheques cleared?

35

FAQs

There is no overseas cross-border cheque clearing system. Foreign cheques, therefore,


have to be sent abroad for payment to the bank on which they are drawn.This process
often takes several weeks and can be expensive as it is done on a cheque by cheque
basis.This process is called collection (as in collection of funds). If the cheque is in a
foreign currency, there will be a charge for converting it to sterling. By the time the
beneficiary bank has received payment from the overseas bank, the exchange rate may
have moved so the beneficiary customer may get less money than would have been the
case on the day the cheque was paid in. Some banks may provide value immediately
subject to recourse.This means that the beneficiarys bank will reclaim the money from
the beneficiary if the cheque bounces and because there are no fixed timescales, this
might happen several weeks later.This service is known as negotiation.There is a fee for
both these services.

Can UK cheques be cleared abroad?


Cheques written on sterling or euro accounts with UK banks, are intended solely for use
in the UK (plus Gibraltar, the Isle of Man and the Channel Islands), and if paid in to an
account with a bank abroad they would need to be sent back here for collection or to
be negotiated (see above for further details of these services).

Is it true that you can use euro-denominated cheques in the UK?


Some banks offer euro-denominated cheque clearing services to customers who hold
a UK euro bank account. Euro-denominated cheques drawn on UK banks can only be
used in the UK and are mainly of interest to businesses.The Cheque and Credit Clearing
Company runs a euro cheque clearing to process these in Great Britain.The banks in
Northern Ireland have their own clearing system managed by the Belfast Bankers
Clearing Committee.The 2-4-6 and 2-6-6 timescales do not apply to euro cheques.

36

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.

What are credit card cheques?


FAQs

These cheques are sometimes issued by card companies to their cardholders and
funds are debited to their credit card account.They can also be referred to as
convenience cheques.The Banking Code includes best practice on how these credit
card cheques are marketed and used.They are cleared in the normal way through the
cheque clearing.

37

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.

I paid cash in to my account, but the cheque I wrote still bounced.Why?


In some banks, unless the cash is paid in to the branch of the bank where your account
is held, the paper bank giro credit slip showing details of the cash amount paid in would
still have to pass through the central paper credit clearing (which mimics that for
cheques).The paper credit takes the same amount of time to pass through the clearing
as a cheque so you would have to pay in the cash on the same day, or before, the
cheque is deposited to ensure funds are available to pay the cheque.

38

40 Glossary
49 Useful contacts

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:

40

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

Glossary

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.
41

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

42

The person or business to whom the cheque is payable.Another term meaning the
same is payee.

The bank that provides the account for the payee of the cheque to which the cheque
is deposited.

bounced

Customers often use this term, whereas the bank refers to a cheque being
returned unpaid.

CHAPS payment

An electronic, irrevocable same-day value payment (formerly known as telegraphic


transfers).

cheques crossed
a/c payee or
account payee

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.

clearing for fate or


cleared for fate

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.

Glossary

beneficiary bank

43

clearing for
value or cleared
for value

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.

clearing for
withdrawal or
cleared for
withdrawal

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.

codeline data

Cheque number, bank sort code and account number printed along the bottom of a
cheque and read electronically.

44

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.

deposited

Another term meaning paid in see below.

IBDE (Inter-Bank
Data Exchange)

A secure electronic network used to transmit codeline and amount details of cheques
from the collecting bank to the paying bank.

paid in

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

45

payee

The beneficiary of the cheque in to whose account the cheque is paid.

payer

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.

paying bank

The bank where the person or business who issued a cheque holds their account.

returned unpaid

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.

46

Role of the
Cheque
and Credit
Clearing
Company

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

47

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.
48

Useful
contacts

Enquiries about cheques and


cheque clearing and APACS
general enquiries:

Cheque and Credit Clearing


Company and APACS media
enquiries:

T: 020 7711 6259


corpcomms@apacs.org.uk
www.apacs.org.uk

E: press@apacs.org.uk

www.chequeandcredit.co.uk

Sandra Quinn, director of corporate


communications
T: 020 7711 6234 M: 07768 044656
sandra.quinn@apacs.org.uk
Jemma Smith, head of PR
T: 020 7711 6340 M: 07811 113075
jemma.smith@apacs.org.uk

Glossary

Mark Bowerman, PR manager


T: 020 7711 6251 M: 07799 627256
mark.bowerman@apacs.org.uk

49

50

Banking Code Standards Board

Financial Ombudsman Service

6 Fredericks Place
London EC2R 8BT
T: 0845 2309694
helpline@bcsb.org.uk
www.bankingcode.org.uk

South Quay Plaza


183 Marsh Wall
London E14 9SR
T: 0845 080 1800
www.financial-ombudsman.org.uk

British BankersAssociation

Payments Council

Pinners Hall
105-108 Old Broad Street
London EC2N 1EX
T: 020 7216 8800
www.bba.org.uk

General inquiries T: 020 7711 6200


Media inquiries T: 020 7638 5760
www.paymentscouncil.org.uk

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

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