Cheque Clearing Process covers a cycle required by financial institutions, such as banks, to complete the necessary checks to make sure that payment is made in accordance with payers’ instructions. Conventionally, the process takes three business days for the financial institutions to transport the deposited cheques from the point of presentment (initial deposit) at the payer bank to the point of decision making at the payee bank and returned the rejected ones from the point of decision making at the payee bank to the point of presentment at the payer bank.
Outward Clearings can be defined as the first part of cheque clearing process where deposited cheques are transported from the point of presentment at the payer bank to the point of settlement at the Clearing House.
Capturing of Payment Details
This process requires a teller or customer service staff at the front office to capture the payment details, including cheque serial number, BSB number, account number, and transaction code, either manually or automatically.
|Problem||Time-consuming manual handling can be tedious and is highly potential to human error. Banks are exposed to potential dispute over data discrepancy and other potential loss.|
|Solutions||You can apply the high-readable MICR reader to speed up the process. Even further, you can take advantage of our automatic data entry solution, which automatically keys in the payment details to the system, minimising the potential dispute and loss while protecting both your banks and your customers against cheque fraud.|
This process proves that cheques have been processed, i.e. payment details have been captured by authorised staff on particular date and time.
|Problem||Some banks still rely on manual proving or endorsing, hardly leaving any records for audit purpose.|
|Solutions||You can choose any of a number of MICR readers currently available in the market. With all details endorsed on the cheques and log file recorded by the system, it becomes much easier for you to indicate processed cheques and trace back the process for audit purpose.|
Subsequent to the process at the front office, another process at the back office will follow, requiring relevant staff to encode the cheque amount. In the meantime, fund will be debited from payer’s account and credited into payee’s account. However, payee will not have access to his/her account until the payer bank verifies the validity of account or sufficiency of fund.
|Problem||Some banks apply independent encoder that specifically functions to encode the amount on the MICR line. This is neither effective nor efficient since such independent encoder will require special extra space, extra care, and ultimately extra cost for either installation or maintenance.|
|Solutions||You are most recommended using MICR encoder, of which quality has been proven for its precise printing and long-lasting ink. Furthermore, you can try our cost-effective encoding solution that features high-level of flexibility, making the solution applicable for pre-encoding, post-encoding (amount-encoding), or even full encoding.|
Transporting of Physical Cheques
When the point of presentment is in main branch, branch, or sub branch in a city or a state, bank usually hires a service from the third party to transport the cheques from the sub-branch to the branch, from the branch to the main branch, from the main branch to the processing centre, and even from the processing centre to the clearing house.
While cheques are physically transported via commercial carrier, the captured payment details is electronically transmitted to the data centre at the payer bank, speeding up the process of checking whether or not there is sufficient fund in the account to make the payment.
|Problem||As long as financial institutions stay relying on this conventional process, by which cheques are transported via commercial carrier, outward clearing process will continue costing significant amount of money, wasting time and other resources, and exposing financial institutions to a number of risks and potential loss.|
|Solutions||You can switch to Cheque Truncation System, by which you only need to transmit Electronic Clearing Data (ECD) instead of the physical cheque. This system does not only speed up the process, but also eliminate dependence on the third party, minimise operating cost and the risk of misplacing or losing the cheques in transit.|
Clearing House Processing
Clearing House Processing can be defined as the bridging process from outward to inward clearing. During this process, deposited cheques received from the point of presentment at the payer bank are sorted by receiving BSB number.
With significant number of banks participating as clearing members in particular country, sorting of physical cheques has been an extremely complicated task. At least 1.5 million cheques are written and transported to the clearing house every business day.
Implementation of low-end cheque sorter will only lead to serious issues from time-consuming and labour-intensive sorting process, increasing operating cost and higher potential to dispute due to misplacement, damage, and loss of cheque.
|Solutions||You can rely on the high-end cheque sorter that is capable of sorting high-volume of cheque based on configurable criteria, such as BSB number, amount, etc.|
Inward Clearings is the second part of cheque clearing process where sorted cheques are delivered from the point of settlement at the Clearing House to the point of decision making at the payee bank.
Transportation of Physical Cheques from the Clearing House to the Processing Centre
This process covers the transportation of sorted cheques from the point of settlement at the Clearing House to the processing centre of corresponding bank.
Similar to the transportation of cheques in the conventional outward clearing, transportation of cheques in the inward clearing also depends on the service provided by the third party.
|Solutions||You can switch to cheque truncation system, by which you only receive ECD instead of the physical cheque. This system does not only speed up the process, but also eliminate dependence on the third party, minimise operating cost and the risk of misplacing or losing the cheques in transit.|
Verification of Cheque
Commonly known as inward document, sorted cheques received from the Clearing House are used as references for verification against the ECD received earlier from the payer bank to check the validity of account and sufficiency of fund.
If the account is valid and there is sufficient fund available in the account, payee may have access to the fund credited to his/her account. However, in case the account is not valid or there is no sufficient fund available in the account, the fund credited to payee’s account will be reversed and deposited cheque will be dishonoured and returned to the payer bank, along with the ECD and reject reason.
Sorting of Physical Cheques
While dishonoured cheques are returned to the payer bank, approved cheque will, once again, be sorted by BSB number.
Even though the number of cheques received by the payer bank is not as many as those received by the Clearing House, implementation of low-end cheque sorter is not advisable. The time-consuming and labour-intensive sorting process potentially leads to several disputes due to misplacement, damage, or even loss of cheques.
|Solutions||To streamline and speed up this process, we recommend that you apply high-speed MICR Reader-Sorter.|
Distribution of Physical Cheque from Processing Centres to Branches
By the end of cheque clearing process, sorted cheques will be distributed to corresponding branch to be archived as proofs of transactions.
Banks, once again, depend on the service from the third party to distribute physical cheques from processing centres to branches, costing extra money and a series of potential issues.
Banks urgently need to switch to cheque truncation system, by which banks only send Electronic Clearing Data (ECD) instead of the physical cheque. This system does not only speed up the process, but also eliminate dependence on the third party, minimise operating cost and the risk of misplacing or losing the cheques in transit.