The cheque and credit clearing process managed by the C&CCC is for sterling cheques and credits drawn on UK banks and paid into bank accounts in Great Britain. It involves the exchange of items and settlement of payments for customers whose accounts are held either at different banks or at different branches of the same bank in Great Britain. The term bank is used in this context to describe any bank or building society which offers customers a payment account facility.
The cheque clearing operates over three days and the process below describes the 2-4-6 cheque clearing timescales. The clearing does not operate on Saturdays, Sundays and bank holidays as settlement across Bank of England accounts can only take place Monday to Friday.
At the end of each working day (day 0), every branch of each of the collecting banks sends all the cheques paid in by its customers to its bank’s clearing centre, to arrive by the early hours of the following working day.
Day 1 – early in the morning
The clearing centre processes the cheques through its reader/sorter machines, which capture the amount of each cheque and the code line, containing the customer’s account number, branch sort code and cheque serial number. This data is converted into encrypted digital files, known as IBDE (Inter-Bank Data Exchange) files.
The electronic files that are created are signed with a digital signature for authentication purposes and are sent to the relevant paying banks later that morning (by 11 a.m. on day one). This is done by means of a secure network known as the IBDE network.
Day 1 – later that morning
The physical cheques are then batched up together with all other cheques drawn on accounts at the same bank and are handed over to the paying banks at the English exchange (also by 11 a.m. on day one), or at the Scottish exchange in the case of cheques drawn on accounts held at branches in Scotland.
The Northern Ireland banks do not participate in IBDE but operate to the same timeframe as the banks in Great Britain. Cheques drawn on banks in Northern Ireland are sent to Northern Ireland for local processing.
Day 2 – the morning
On the morning of day 2, the C&CCC calculates the net amount the banks must pay to or receive from each other in Great Britain 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. In Northern Ireland each pair of the four clearing banks agrees bilaterally the net sum due to or from each bank and a CHAPS payment is sent to settle the amount owed.
Also on the morning of day two, the paying bank updates its customers’ accounts. Following the Deregulation Bills Act 1996, cheques no longer have to be returned to the drawee branch as a matter of course, but can be examined for irregularities at a central paying bank point. This is also the day on which the pay/no pay decision is made. If the paying bank decides not to pay a cheque, it will send the unpaid cheque back to the collecting bank by special courier for advice to the beneficiary.
The unpaid cheque arrives back at the collecting/beneficiary bank and is reclaimed from the beneficiary’s account, so they cannot withdraw the funds on day four. Depending on the reason for the cheque being returned unpaid, the beneficiary/collecting bank will either try again to get the cheque paid by representing it, or it will send the cheque back to the customer who made the deposit and advise them it has been unpaid.
Day 4 and Day 6
In November 2007 2-4-6 timescales for clearing cheques came into force. The timescales provide increased clarity and, for the first time, certainty for customers paying cheques into their current, basic or savings bank or building society accounts. To find out more about the 2-4-6 timescales click here.
After paying in a cheque the customer can be sure that at the end of six working days the money is theirs to keep. The customer is protected from any loss should the cheque subsequently be found to be fraudulent unless they are a knowing party to fraud.
The 2-4-6 timescales also set maximum times for customers to start earning interest on money paid in by cheque (working day 2) and similarly, maximum times for when the funds are available for withdrawal (working day 4 or working day 6 if paid into a savings account).