Glossary

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.

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.

Banker's draft and banker's or building society cheque

A banker's cheque is a cheque drawn directly on the issuing bank (or building society if it is a building society cheque) rather than on the account of a customer,and signed by a bank or building society official.  A banker's draft is not strictly speaking a cheque but, 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 banker's cheque or draft, the bank will debit the ordering customer's 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.

Beneficiary bank

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".

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.

Clearing for withdrawal or cleared for withdrawal

From a beneficiary's 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 issuer's 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.

Codeline data

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

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-Excahnge)

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 beneficiary's 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.

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 payer's 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 beneficiary's account by the beneficiary bank - this may be after the funds have been withdrawn by the beneficiary.