The guide to chequesand the British chequeclearing system

Cheques & ChequeClearing The Facts

IntroductionThis booklet has been produced by APACSand the Cheque and Credit Clearing Companyto clarify issues about cheques including theclearing cycle, trends in the use of chequesand the UK Domestic Cheque GuaranteeCard Scheme.You can download furthercopies of this booklet from:www.apacs.org.ukor www.chequeandcredit.co.uk

APACS is the trade body that gives banks,building societies*and card companies aforum where they can work together on non-competitive issues.APACS helps manage theway that businesses and individuals in the UKmove their money around this covers cheques,cash,credit and debit cards and automated

payments such as direct debits,salarypayments and online/phone transactions.

The Cheque and Credit Clearing Companyis a membership-based industry body withtwelve settlement members.The companymanages the cheque clearing system in GreatBritain,which processes cheques,bankersdrafts,building society cheques,postal orders,warrants and government payable orders. Itswider remit includes the management of thesystems for clearing paper bank giro creditsand euro-denominated cheques. In NorthernIreland,the processing of cheque and papercredit payments is managed by the BelfastBankersClearing 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.

Cheq

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ringWhat are cheques?HistoryThe 2-4-6 and 2-6-6 changesMaximum 2-4-6 clearing times2-4-6 FAQsThe cheque clearing cycleUK Domestic Cheque Guarantee Card Scheme

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Cheques andChequeClearing

Cheques are written orders from account holders instructing their banks to pay specifiedsums of money to named beneficiaries.They are not legal tender but are legaldocuments and their use is governed by the Bills of ExchangeAct 1882,and the ChequesActs of 1957 and 1992.

The cheque evolved over many years,with the earliest handwritten cheque known to bein existence dated 16 February 1659.Fully-printed cheques were introduced in the early1700s,with the first personalised printed cheques produced in 1810.The daily chequeclearings began around 1770 when bank clerks met at the Five Bells (a tavern inLombard Street in the City of London) to exchange all their cheques in one place andsettle 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 theclearings (later known as the Committee of London Clearing Bankers), the first clearinghouse building, initially owned by a group of private bankers,was built in Lombard Streetin 1833.Although there were various changes in membership,and settlement in cashwas replaced by settlement across accounts held at the Bank of England, thisarrangement continued for 150 years until the Cheque and Credit Clearing Companywas established in 1985.The Lombard Street clearing house closed in 1994 and theEnglish exchange centre moved to Alie Street in east London.The Scottish clearing

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What arecheques?

History

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ringbecame part of the Cheque and Credit Clearing Company in 1996 bringing with it aScottish exchange centre.At the end of 2003, the English exchange centre movedoutside 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 billionpersonal cheques were processed.Since 1990,cheque volumes have gradually declineddue to the growth of alternative ways to pay.Personal cheque use has halved in the lastten years,with just 1 billion being written in 2006.

Businesses and consumers have increasingly chosen to pay bills by direct debit and touse plastic cards to pay for goods and services,whilst many large retailers have taken thedecision to stop accepting cheques.This trend is set to continue,with personal chequevolumes predicted to drop a further 60% to 392 million by 2016.Despite this trend, theindustry is committed to maintaining the quality and integrity of cheque clearing and toensure 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 fora cheque to clear. In November 2007,changes were introduced to increase clarity andcertainty for all elements of the UK sterling cheque clearing process.These changesapply to customers paying in UK sterling cheques issued by or deposited in to sterlingaccounts with UK banks and building societies.These are sometimes referred to as the2-4-6 and 2-6-6 changes to cheque clearing processes.The 2-4-6 changes have beenimplemented for sterling current and basic bank accounts (see diagram opposite)whilst the 2-6-6 changes have been implemented for UK sterling savings accounts.Thechanges dont alter the central process (described on page 10).However, for customersit means for the first time after paying in such cheques they can be sure at the end of sixworking days that the money is theirs.After this point, the customer is protected from lossif the cheque subsequently bounces and the money cannot be reclaimed without theirconsent unless they are a knowing party to a fraud.

The changes also set maximum timescales for when customers will start earning intereston 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 theywill pay interest or allow funds from the cheque paid in to be withdrawn,so customersshould make sure they have an account best suited to their needs.

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

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

e.g.no later thanWednesdayYou start to receive interest on the money from today 2

e.g.no later than FridayYour bank will allow you to withdraw the money today 3

e.g.no later thanTuesdayYou can be sure the money is yours by the end of today 4

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 mayoffer 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 aboutthe status of a cheque you should check with your bank.

Example

Simon pays in a cheque to his currentaccount at his bank on Monday morning.He starts to earn interest on the moneybyWednesday (+2 days),and by Fridaymorning (+4 days) his bank will enablehim to withdraw the money from thecheque from his account,even thoughthe cheque could still bounce.By the endof the followingTuesday (+6 days),he canbe certain that the cheque he was givenwill not bounce and the money from thecheque is his.

Maximum 2-4-6 clearing times

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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 postoffice or by post.Every bank will make clear to the customer the day a cheque isconsidered to have been deposited for the purposes of calculating the elapsed timebefore interest is paid,withdrawal allowed and the certainty that the cheque will not bereturned unpaid to the beneficiary customer.

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 bankersdrafts. If youdont know or trust the person offering you a cheque,you should consider other optionssuch as a CHAPS payment,a telephone or internet payment or cash.Ask your bank foradvice if youre in any doubt. If your chequebook is stolen and used by a fraudster youwill continue to enjoy full protection from financial loss provided you havent breachedthe terms and conditions of your account.You should report a loss or theft as soon asyou notice it.

I sometimes pay in cheques at a post office or send them by post.How willI 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.

2-4-6 FAQs

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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 bankholidays 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 allbanks and building societies and all cheques in all situations?All subscribers to The Banking Code have committed to implementing these changesandmaximum timescales for their customers. In exceptional situations,should they beunable 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 withdrawand spend cheque funds before this?You must be aware that you do so at your own risk and if the cheque subsequentlybounces you may have to return funds to your bank.

Do the 2-4-6 changes impact when I can or should release goods or servicesto my clients?It may do as these changes will give you certainty on cheque funds and clarify whenyou can be sure the cheque funds are yours and when you can release goods orservices 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 advertisedcut-off times.You can pay in a cheque in a number of other ways such as at a cashmachine,by post or at a post office.However, these may all affect when your bankactually receives the cheque and the timescale starts. If you are not sure when day 6 haspassed 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 itgives interest on cheque funds or, if the account is overdrawn,when cheque funds willreduce the balance on which overdraft interest charged.These changes mean the latesttime 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 featuresallow customers to benefit from a higher rate of interest. If you want faster access tocheque funds you should consider paying a cheque in to a current account or basicbank account.The timescales on saving accounts for earning interest and knowing themoney 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 beatingthose timescales with their own competitive offerings.Under The Banking Code,banksare required to provide clear details of their policies.

What advice would you offer to customers who are inconvenienced by thetime taken to access cheque funds?If speed is important you should consider being paid in some other way. If youre acustomer who receives a lot of cheques you should ensure you have an account whichbest suits your needs.Some accounts allow early access to funds from cheques,possiblyas early as the day you pay your cheque in.However,you should be aware that if acheque were to be returned unpaid after funds have been withdrawn and before theend of the 6th working day after paying in, then the bank would seek reimbursementfrom you.

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The way in which the clearing cycle works is explained below.This example is basedon a customer paying a UK sterling cheque issued by a UK bank in to their UK currentaccount at their branch counter and the account is one where the 2-4-6 maximumtimescales apply.

Day 0 Paying in a chequeIn this example,Mr Smith (whose account is with the paying bank) has written a sterlingcheque payable to Miss Jones who pays it in to her sterling current account at herbranch (the collecting bank) on Monday.Her bank will apply the funds to her accountand update their records that day (some banks apply funds and update their recordslater).So the money will show as an entry on her account,but in this example that doesnot mean that she will start earning interest or that she can withdraw the fundsstraightaway.

At the end of each working day (the central clearing system does not operate onSaturdays,Sundays and bank holidays) all the cheques that have been paid in to thevarious branches of a bank are sent to its clearing centre.So the cheque paid in by MissJones is sent to her banks clearing centre,arriving late Monday night or early onTuesdaymorning or day 1.

The chequeclearingcycle

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At the clearing centres the cheques are sorted.The sort code,account number andserial 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 whichthe cheque is drawn (the paying bank i.e.Mr Smiths bank) onTuesday morning (day 1).The physical cheque is then bundled up with all other cheques drawn on accounts atMr Smiths bank and handed over to his bank (the paying bank) at one of the exchangecentres in England or Scotland later on that morning. If the cheque was drawn on abank in Northern Ireland it would be sent to Northern Ireland for local processing.

Day 2 earning interest / reducing overdraft interestAt this point,onWednesday morning,Miss Jones will have started to earn interest on thefunds from the cheque she has deposited or, if her account is overdrawn, the balanceon which overdraft interest is charged will be reduced.This part of the clearing cycle issometimes referred to in banking asclearing for value.

Also onWednesday 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 showas an entry to his account on his statement and on his balance slip.FromMr Smithsperspective, the cheque has also been cleared for value,which means that funds paidby cheque stop earning credit interest or, if his account is overdrawn, increase thebalance on which overdraft interest is charged.

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However, it is still possible that the cheque may bounce due to insufficient funds inMr Smiths account, if he has forgotten to sign the cheque (or there was some othertechnical reason), if Mr Smith were to put a stop on the cheque or the cheque turns outto be fraudulent. It is very rare for a cheque to bounce,only about 0.5% of the chequescleared each day are returned unpaid. If the cheque does bounce,Miss Jonesbankmay 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 toMiss Jonesbank.This is normally done by courier.

As far as the central clearing process is concerned,onWednesday morning the Chequeand Credit Clearing Company calculates the net amount the banks must pay to orreceive from each other on the basis of the value of all the cheques exchanged on theprevious day.The net sterling balances are then settled across accounts held at theBank of England.

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Day 4 withdrawing moneyBy no later than Friday, four working days after paying in her cheque,Miss Jonesbankallows her to withdrawmoney against the funds deposited in the cheque fromMr Smith.This is sometimes referred to in banking asclearing for withdrawal. If Miss Jonesaccountis a savings account withdrawal may not be allowed until day 6.

Day 6 certaintyBy the end of the followingTuesday (six working days after she has paid in the cheque)Miss Jones can be certain that the cheque funds have cleared,unless the money hasalready been debited from her account.This means that providing she hasnt been aknowing party to a fraud, the money is hers to keep and it cannot be reclaimed withouther consent.This final part of the clearing cycle is sometimes referred to in banking asclearing for fate.

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The first cheque card was introduced in October 1965,guaranteeing payment of sterlingcheques up to a value of 30.This limit was raised in 1977 to 50 and two additional limitsof 100 and 250 were introduced in 1989.

In July 1969 the UK Domestic Cheque Guarantee Card Scheme was established tocreate common,easily-identifiable design features to simplify acceptance proceduresfor retailers and other businesses.Since 1 October 1990 the common theme appearingon 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 decliningcheque 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 andcheques may be returned unpaid.

One cheque per transaction is guaranteed up to the value limit shown on theaccompanying cheque guarantee card.

Cheques must be dated correctly with the actual date of issue (i.e. they must not bepost-dated).

UK DomesticChequeGuaranteeCard Scheme

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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 thepayee 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 itsexpiry date andmust not have been altered or defaced.

When using cheques to obtain cash,customers are limited to one guaranteedcheque per day for this purpose.Cashiers use frequency-marking pages (found at theback of chequebooks) to keep a record of encashments and to ensure that the oneper-day rule is adhered to.

Encashed cheques must be banked no later than 3 days after the date on which theencashment 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 (italso 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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Facts

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Facts and figuresCheque volumesTop tips for consumers and businessesCheque fraud be on your guard!

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There were just over 4.9 million business and personal cheques issued each day in2006,compared with 11 million in the peak year for cheque volumes,1990.By 2016there will be only 2.3 million per day.

If all the cheques processed in 2006 were laid end-to-end, they would stretch almostfive times round the world.This compares with eight times around in 2001 and 12 timesin 1990.

In 2006 each adult made 1.6 cheque payments per month,compared with 4.3 permonth in 1991.

Adults receive six cheques on average per year. Only 5 million adults still use guaranteed cheques on a regular basis,compared with16 million in 1996.

Womenmake almost 52% more guaranteed cheque payments than men. Only one in eight regular bills is paid by cheque,compared with one in three asrecently 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 madeby 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 orcredit card.

Business cheque use peaked in 1997.Since 2001 business-to-business cheques haveseen rapid decline as businesses increasingly use automated payments to pay suppliers.

Facts andfigures 2006

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UK cheque volumes 1989 2016 (millions)Vo

lum

es(m

illio

ns)

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

*200

7

*200

8

*200

9

*201

0

*201

1

*201

2

*201

3

*201

4

*201

5

*201

6

3900

3976

3882

3728

3559

3430

3283

3203

3091

2988

2859

2702

2567

2394

2251

2088

1931

1778

1658

1515

1365

1241

1158

1083

1015

952

892

840

Yea

r*A

PAC

Ses

tima

tes

forc

heq

uevo

lum

es

0

1000

2000

3000

4000

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Advice for personal and business customers when receiving and paying in cheques: Cheques should be paid in to your account as soon as possible to reduce risk of lossor theft.They should always be paid in within six months,as older ones may be rejectedor returned unpaid.

Never accept a cheque from someone unless you know and trust them.Be especiallywary when accepting high-value cheques or bankersdrafts.

Be aware that if you decide to withdraw funds or release goods before the end of thesixth day after paying in a cheque, there is a risk that the money could be reclaimedif the cheque bounces (i.e. is returned unpaid),or it turns out to be stolen or fraudulent.

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 aguaranteed, irrevocable,same-day value payment. If the buyer is unwilling to pay therelatively small cost involved or to split it with you then you need to be on yourguard.FromMay 2008 a new faster payments service for same day payments will beavailable for internet,phone and standing order payments. In some circumstances thisservice may provide a good alternative to cheques.

If you are a knowing party to a fraud your bank may recall funds paid in by chequefrom your account at any time.

Top tips forcustomers

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If certainty is important,before you release your goods you should check your bankbalance at the end of day 6 after paying in a cheque to ensure that it has notbounced (i.e.been returned unpaid).

If you receive a cheque drawn on an overseas bank,your bank will send it back tothe issuing bank for payment,as foreign cheques cannot be cleared through the UKclearings.As it can take time and be costly to obtain value for a foreign cheque,youshould seek payment by a different method.

If you receive a euro cheque drawn on a UK bank,your bank will be able to clear thisfor you through the euro cheque clearing system,but the 2-4-6 and 2-6-6 timescalesdo not apply. If you do not have a euro account,your bank will charge you forconverting the euros into sterling when you pay the cheque in to your sterling account.

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Advice when writing and issuing cheques: Make sure you write the name of the payee clearly and correctly.The vast majority ofcheques are crosseda/c payee,which means that they must and can only be paidin to the account of the named beneficiary (i.e. the person to whom the cheque ismade payable).This prevents cheques being cashed or paid in to the accounts ofthird parties.

If youre making a cheque payable to a bank,you must ensure that you providesufficient details on the payee.Enter the full details for the account holder in the payeeline, for example XYZ Bank, re J Jones,account number xxxxxx. In order to guard againstfraud, the rules for accepting cheques at banks and building societies changed inOctober 2006.

Write the words clearly, starting from the left-hand side of the cheque and write theamount in figures as close to the sign as possible.

You should draw a line through all unused space so unauthorised people cannot writein extra names,change the amount in words or add extra numbers in the amount box.

Dont let your signature overlap the amount box and dont use commas or signs inthe amount box.

If youre using a sterling chequebook,dont write your cheque in a foreign currencyor euros.

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Write cheques using black or blue ballpoints or pens with indelible ink.Do not fold orstaple cheques.

If you need to make amendments, these should be made clearly by crossing throughthe 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 wordonlyafter writing the amount in words.

It is advisable not to post-date a cheque. It is likely to be outside the terms andconditions of your account and it may simply be cleared as soon as it is paid in.So ifthere are insufficient funds in your account or you have already reached your overdraftlimit, it may bounce.

If you issue a cheque that is not presented within six months,do not assume that itcan no longer be used. It may be cleared when presented,unless there are no fundsin your account, in which case the cheque will be returned unpaid.You may wish toask 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 theback should be signed immediately.

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To help protect your account from fraud you should report any misuse of cheques asearly as possible.Use chequebook counterfoils to record details of cheques issuedand compare them with bank statements.Any discrepancies should be reported toyour bank immediately.

Although cheques issued by UK banks can be used in Gibraltar, the Isle of Man andthe Channel Islands,customers wishing to make overseas payments are advised toconsult their bank about alternative payment methods.

Advice for businesses when issuing chequesBest Practice Guidelines for Users of Company Cheques are available to download fromwww.chequeandcredit.co.uk and www.apacs.org.uk.The guidelines include informationabout:

how to order chequebooks from a Cheque Printer Accreditation Scheme(CPAS) member;

tips on controlling the use of cheques such as ensuring procedures are in place forissuing cheques and reconciling bank statements;and

advice on writing company cheques to deter fraudulent alteration and the besttype of printer and printing ink to use.

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Dont accept a cheque,or bankers draft, from someone unless you know and trustthem.Be especially wary when accepting a high-value cheque for instance if youare selling a car.

Be aware that,until a cheque has beencleared for fateat the end of the 6th dayafter you have paid the cheque in to your account, there is a risk that the money couldbe 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 aninternet or phone banking payment or a CHAPS payment.There is a charge for aCHAPS payment but it is a guaranteed same-day value payment. If thebuyer isunwilling to pay the relatively small cost involved or to split it with you then youreally do need to be on your guard.

Be aware that a bankers draft or building society cheque is not necessarily safe fromfraud.They can be stolen or altered like any other cheque,and if altered,stolen orcounterfeit they will not be honoured. If you receive a bankers draft in payment forgoods you should wait until you have certainty of fate at the end of the 6th workingday 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.

Chequefraud be onyour guard!

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How do cheque scams typically happen?In recent years organised gangs have targeted consumers selling high-value goodssuch as cars.So if youre selling a high-value item be particularly wary of accepting acheque. If you do,you shouldnt hand over the goods until you have certainty that thecheque funds will not be reclaimed from you (this happens at the end of the 6th workingday after you have paid the cheque in to your account).

Typically the gangs use stolen or counterfeit cheques, they will offer a cheque or bankersdraft for more than the price of the goods (as ever,anything that sounds too good to betrue should set alarm bells ringing,but their excuse may sound plausible).Youre thenasked to transfer the amount of the overpayment either to them or to a third party twodays 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 andstop such cheques in the clearing process it is not until the end of the 6th working dayafter you have paid the cheque in that your bank or you can be sure that the chequefunds 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 informationand facts about cheque fraud on their websites. If youre concerned about the mostsuitable 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 clearingtimescales for customers (see page 04) in November 2007.As a result, for the first timeyou can be confident that at the end of 6 days after paying in a sterling cheque orbankers draft the money is yours and you are protected from any loss even if the chequesubsequently bounces (i.e. is returned unpaid),or if it turns out to be fraudulent.The fundscant 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:

The industry sponsors its own specialist police fraud squad the Dedicated Chequeand Plastic Crime Unit (DCPCU) to target the organised gangs behind chequefraud.

Banks are focusing on identifying lost or fraudulent cheques as they pass throughthe clearing system.The industry has a good track record: in 2006 more than 90% ofattempted cheque fraud was spotted and stopped in the cheque clearing process.

The Cheque Printer Accreditation Scheme (CPAS) helps combat fraud by ensuringall customer chequebooks are printed to the highest security standards.All chequeprinters have to be accredited by this Scheme.Security features on cheques areparticularly effective in combating both counterfeit and fraudulently alteredcheques.CPAS is managed by the Cheque and Credit Clearing Company.

FAQsFrequently

AskedQuestions

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Why dont cheques clear instantly?Cheques are paper items,which are physically transferred between banks.Although thepaying bank receives some of the data electronically, the cheques themselves must alsobe transferred.This is so that they can be examined by the paying bank for security andfraud prevention purposes, to ensure that the cheque has been made out correctly andto make the decision whether to return a cheque unpaid.Despite the central clearingtimescales individual banks may decide to allow customers to withdraw cheque fundsmore quickly.However, if a cheque bounces before the end of the 6th working day afterpaying 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% ofcustomers placed any value on faster withdrawal and some customers use the currentcycle to their benefit to delay money being taken from their accounts.

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Can I stop a cheque?You can request your bank to stop payment of a cheque before it makes its decisionwhether or not to pay it,but it is best to do this as soon as possible after issuing it.Theremay be a charge for this. If payment of the cheque was guaranteed by a chequeguarantee card,provided all the conditions of use were met,you cannot subsequentlyask your bank to stop payment.

What is special presentation or special clearance?If youre the beneficiary (i.e.payee) of a cheque and you wish to know as soon aspossible 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 bepaid.You may not receive the funds any sooner,but you will have the knowledge thatthe cheque has been paid before the end of day 6.

Can a cheque be paid in to the account of someone other than thenamed payee?Most cheques are crosseda/c payeewhich means they can only be paid in to theaccount of the named payee.The crossing cannot be deleted,nor can the cheque betransferred over to a third party.

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Why are retailers no longer accepting cheques?You would need to ask those involved as the reasons may vary some have said thedecision is driven by cost and some by retailers fraud concerns.However,you can be surethat none of them would be making this decision if they felt they would lose customers orbusiness 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 overthe next decade but on the high street many larger retailers have already stoppedaccepting cheques.Cheques still remain popular for person-to-person payments andperson 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 willprobably 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 regularbills and commitments.Credit and debit cards have,by and large,overtaken chequesfor retail purchases and CHAPS provides an electronic, irrevocable,same-day paymentsystem,usually for high-value payments.Phone and internet banking are alsoincreasingly being used to make payments and in May 2008 a new same day fasterpayments service will be available that will speed up phone and internet payments.

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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 consideryour companys needs when choosing how to accept or make a payment.With theadvent of chip and PIN,plastic cards are an extremely popular way to pay,and manycompanies increasingly prefer to accept card payments to cash or cheques.You couldalso 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?It is common banking practice to reject cheques that are over six months old to protectthe payer,on the basis that payment may already have been made by some othermeans or the cheque may have been lost or stolen.However, this is at the discretion ofindividual banks. It should not be assumed that cheques in excess of six months oldwould automatically be rejected the only certain way to cancel a cheque is to requestthat a stop be placed on it.Cheques backed by a cheque guarantee card cannot bestopped. It is recommended that, if possible,customers in possession of cheques that areover six months old obtain a replacement. In case of disputes,a cheque remains legallyvalid to use to prove a debt for six years.

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Can I post-date a cheque?Banks set their own policies on post-dated cheques and, in many cases, their accountterms and conditions state that customers should not write them. If the beneficiary of apost-dated cheque attempts to pay it in to their account prior to the date shown, it maybe returned unpaid,possibly incurring charges for both parties, if the terms andconditions of the account state that cheques should not be post-dated.Or it may becleared and paid,potentially creating problems for the customer who wrote it.Post-datedcheques are not covered by the UK Domestic Cheque Guarantee Card Scheme andcould 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 onthe original cheque and, if you wish, issue another cheque which the beneficiary will thenpay in.You may,of course,prefer to make payment by other means.

Howmuch are total cheque fraud losses?In 2006 cheque fraud in the UK amounted to 30.6 million a 24% decrease from the2005 total of 40.3 million.Previously cheque fraud losses had been on the increase,totalling 36 million in 2002 and 45 million in 2003.

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Who pays for cheque fraud losses retailers,banks or customers?This will always depend upon the facts of each case.However,any innocent customerwho has their chequebook stolen and used by a fraudster can expect to get their moneyback from their bank.

How are foreign cheques cleared?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 processoften takes several weeks and can be expensive as it is done on a cheque by chequebasis.This process is called collection (as incollection of funds). If the cheque is in aforeign currency, there will be a charge for converting it to sterling.By the time thebeneficiary bank has received payment from the overseas bank, the exchange rate mayhave moved so the beneficiary customer may get less money than would have been thecase on the day the cheque was paid in.Some banks may provide value immediatelysubject to recourse.This means that the beneficiarys bank will reclaim the money fromthe beneficiary if the cheque bounces and because there are no fixed timescales, thismight happen several weeks later.This service is known as negotiation.There is a fee forboth these services.

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Can UK cheques be cleared abroad?Cheques written on sterling or euro accounts with UK banks,are intended solely for usein the UK (plus Gibraltar, the Isle of Man and the Channel Islands),and if paid in to anaccount with a bank abroad they would need to be sent back here for collection or tobe 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 holda UK euro bank account.Euro-denominated cheques drawn on UK banks can only beused in the UK and are mainly of interest to businesses.The Cheque and Credit ClearingCompany runs a euro cheque clearing to process these in Great Britain.The banks inNorthern Ireland have their own clearing systemmanaged by the Belfast BankersClearing Committee.The 2-4-6 and 2-6-6 timescales do not apply to euro cheques.

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Are bankersdrafts and building society cheques as good as cash? How dothey work?No, they are not as good as cash as they may have been lost or stolen and thenfraudulently used.Bankersdrafts and building society cheques are processed in thesame way as ordinary cheques and have to go through the clearing system.So youshould still wait until the end of day 6 to be certain that the money is yours.The comfortthey provide is that they will not be returned unpaid due to lack of funds,as they aredrawn on the account of the actual bank and are paid for in advance by the customer.

What are credit card cheques?These cheques are sometimes issued by card companies to their cardholders andfunds are debited to their credit card account.They can also be referred to asconvenience cheques.The Banking Code includes best practice on how these creditcard cheques are marketed and used.They are cleared in the normal way through thecheque clearing.

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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 banksclearing centre rather than in to their branch at the end of the day,effectively by-passingpart of the clearing cycle.Alternatively, if both the customer and the retailer holdaccounts at the same bank branch the cheque would not have to pass through thecentral cheque clearing. It is always important that you make sure you have sufficientfunds 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 accountis held, the paper bank giro credit slip showing details of the cash amount paid in wouldstill have to pass through the central paper credit clearing (which mimics that forcheques).The paper credit takes the same amount of time to pass through the clearingas a cheque so you would have to pay in the cash on the same day,or before, thecheque is deposited to ensure funds are available to pay the cheque.

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Glossary

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These changes known as 2-4-6 and 2-6-6 have been implemented by UK banks andbuilding societies.

2-4-6 covers sterling current and basic bank accounts and business accounts. It hasgiven customers maximum clearing timescales and increased transparency providingclarity and certainty when paying in a sterling cheque issued by a UK bank. It refers to 2,4and 6 working days after a cheque has been paid in to a current or basic bank account:

The start of the 2nd working day is the maximum timescale forclearing for value(see glossary).

The start of the 4th working day is the maximum timescale forclearing forwithdrawal(see glossary).

The end of the 6th working day is the maximum timescale forclearing for fate(see glossary).

2-6-6 applies to sterling savings accounts. It has given customers maximum clearingtimescales and increased transparency providing clarity and certainty when paying ina sterling cheque issued by a UK bank. It refers to 2,6 and 6 working days after a chequehas been paid in to a savings account:

Glossary2-4-6 and 2-6-6changes

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The start of the 2nd working day is the maximum timescale forclearing for value(see glossary).

The start of the 6th working day is the maximum timescale forclearing forwithdrawal(see glossary) provided withdrawals are allowed under the terms andconditions of the savings account.

The end of the 6th working day is the maximum timescale forclearing 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 tohave been deposited for the purposes of calculating the elapsed time before interest ispaid,withdrawal allowed and the certainty that the cheque will not be returned unpaidto the beneficiary customer.

An automated payment is a payment made by electronic transfer directly in to a bankaccount. Internet and phone payments,as well as direct debits,direct credits andstanding orders are currently processed through the automated Bacs centralinfrastructure.FromMay 2008,a new faster payments service will be launched that willoffer a same day service for phone, internet and standing order payments.

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These are voluntary codes,which set standards of good practice for financial institutionsto follow when dealing with personal customers (The Banking Code) and businesscustomers (The Business Banking Code) in the UK.They provide valuable protection forbank customers and cover such areas as basic bank accounts,current accounts,cardproducts, lending,savings and payments,and specifically ensure transparency on thecheque clearing cycle.

A bankers cheque is a cheque drawn directly on the issuing bank (or building society ifit is a building society cheque) rather than on the account of a customer,and signed bya bank or building society official.A bankers draft is not strictly speaking a cheque but,like a cheque, it is subject to the Bills of ExchangeAct 1882,and is cleared in the sameway as a cheque.When issuing a bankers cheque or draft, the bank will debit theordering customers account,so that the payee can be assured that the cheque or draftwill not be returned unpaid due to lack of funds.This means that,provided the cheque ordraft is genuine, the recipient can be certain that funds will clear.The timescales forclearing for value,withdrawal and fate apply.

The person or business to whom the cheque is payable.Another termmeaning thesame is payee.

The Banking Codes

bankers draft andbankers or buildingsociety cheque

beneficiary

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

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

An electronic, irrevocable same-day value payment (formerly known as telegraphictransfers).

The vast majority of cheques are crosseda/c payee,which means that they must bepaid in to the account of the named beneficiary (i.e. the person to whom the cheque ismade payable).This prevents cheques being cashed or paid in to the accounts of thirdparties.The issue of cheques crossedaccount payee is covered in the Cheques Act of1992,Section 1 which gives statutory force to the crossing.

The point at which funds from a cheque have cleared and the cheque can no longerbe returned unpaid and the beneficiary can be sure the money is theirs and cannot bereclaimed 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 ableto determine if this is the case by the time clearing for fate or certainty is provided.

beneficiary bank

bounced

CHAPS payment

cheques crosseda/c payeeoraccount payee

clearing for fate orcleared for fate

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From a beneficiarys perspective the point at which funds deposited (i.e.paid in) bycheque start earning credit interest or, if the account is overdrawn,start reducing thebalance on which overdraft interest is charged.Although included in the accountbalance and shown on the statement or cash machine slip, the funds may not yet beavailable to withdraw.From a cheque issuers perspective,when funds paid by chequestop earning credit interest or, if the account is overdrawn, increase the balance onwhich overdraft interest is charged.

When funds deposited (i.e.paid in) by cheque are available for withdrawal from thebeneficiarys 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 balanceafter the withdrawal remains within an agreed overdraft limit).Also there may be valuelimits on the amounts which may be withdrawn by particular methods (e.g.a daily limiton the value of cash machine withdrawals).The cheque may still bounce and thebeneficiary bank may still reclaim the money from the cheque paid in until clearing forfate has been reached.

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

clearing forvalue or clearedfor value

clearing forwithdrawal orcleared forwithdrawal

codeline data

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The bank where the cheque is deposited (i.e.paid in). It is often,but not necessarily, thesame as the beneficiary bank.

Another termmeaningpaid in see below.

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

Cheques may be deposited (i.e.paid in) to a beneficiarys own account by a variety ofmeans:at a branch counter, through a cash machine or other accepting machine,at apost office or by post.Normally for a counter deposit the day of deposit will be the sameday, if deposited before the advertised cut-off time for that counter (and the next workingday if after the cut-off time).For postal deposits it will normally be the day the cheque isreceived by the bank.Every bank will make clear the day a cheque is considered tohave been deposited for the purposes of calculating the elapsed time before value,withdrawal or fate.

collecting bank

deposited

IBDE (Inter-BankData Exchange)

paid in

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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 bottomof 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 thebeneficiary customer via the beneficiary bank.There are a number of reasons why thismay happen.For example, there may be insufficient funds in the payers account, thecheque may be fraudulent,or it may be wrongly dated or unsigned.When a cheque isreturned unpaid its value may be reclaimed from the beneficiarys account by thebeneficiary bank this may be after the funds have been withdrawn by the beneficiary.

payee

payer

paying bank

returned unpaid

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The Cheque and Credit Clearing Company is a membership-based industry body withtwelve settlement members.The company manages the cheque clearing system inGreat Britain,which processes cheques,bankersdrafts,building society cheques,postal orders,warrants and government payable orders. Its wider remit includes themanagement of the systems for clearing paper bank giro credits and euro-denominatedcheques. In Northern Ireland, the processing of cheque and paper credit payments ismanaged by the Belfast BankersClearing Committee.

Current settlement members of the Cheque and Credit Clearing Company can befound on www.chequeandcredit.co.uk.Each member is individually responsible forprocessing cheques drawn by or credited to accounts of their customers. In addition,several hundred banks and building societies provide cheque clearing facilities for theircustomers and they obtain indirect access to the cheque clearings by means of agencyarrangements with one of the settlement members.

Role of theChequeand CreditClearingCompany

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The role of the company is to: manage, through third party suppliers, the running of both the cheque and creditexchange centres and the Inter-Bank Date Exchange (IBDE) network (across whichmember banks transmit electronic details from cheques);

calculate the net amounts members must settle with each other and advise theamounts to the Bank of England for settlement;

maintain the integrity of the clearing system to ensure that the central clearingprocess happens on time, reliably and to quality standards;and

determine the rules required to maintain integrity and ensure that participatingmembers comply with those rules.

The company also manages the Cheque Printers Accreditation Scheme (CPAS).Thisscheme was introduced in 1995 with the aim of tackling fraud involving companycheques.The scheme ensures that all cheques for use in the GB clearing are producedby printers accredited to the scheme,who are required to adopt stringent securitystandards.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 banksbased abroad.These are processed separately on a cheque by cheque basis by thebanks where they are deposited.

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Enquiries about cheques andcheque clearing and APACSgeneral enquiries:

T: 020 7711 6259corpcomms@apacs.org.ukwww.apacs.org.uk

www.chequeandcredit.co.uk

Cheque and Credit ClearingCompany and APACS mediaenquiries:

E:press@apacs.org.uk

Sandra Quinn,director of corporatecommunicationsT: 020 7711 6234 M:07768 044656sandra.quinn@apacs.org.uk

Jemma Smith,head of PRT: 020 7711 6340 M:07811 113075jemma.smith@apacs.org.uk

Mark Bowerman,PR managerT: 020 7711 6251 M:07799 627256mark.bowerman@apacs.org.uk

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Banking Code Standards Board6 Fredericks PlaceLondon EC2R 8BTT: 0845 2309694helpline@bcsb.org.ukwww.bankingcode.org.uk

British BankersAssociationPinners Hall105-108 Old Broad StreetLondon EC2N 1EXT: 020 7216 8800www.bba.org.uk

Financial Ombudsman ServiceSouth Quay Plaza183 MarshWallLondon E14 9SRT: 0845 080 1800www.financial-ombudsman.org.uk

Payments CouncilGeneral inquiries T: 020 7711 6200Media inquiries T: 020 7638 5760www.paymentscouncil.org.uk

Copyright and intellectual property rights in this document lie withAPACS (Administration) Limited It must not be copied in whole or in part without the expresspermission ofAPACS (Administration) Limited.While every effort ismade to ensure theaccuracy of any information or othermaterial contained in this document,it is provided on the basis that APACS (Administration) Limited (andAPACS and its members either individually or collectively) accept no responsibility for anyloss, 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 othermaterial 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 onlyand should not be taken as a definitive legal guide.

For further information:visit www.chequeandcredit.co.ukvisit www.apacs.org.uke-mail corpcomms@apacs.org.ukcall 020 7711 6259

APACS (Administration) Ltd November 2007Mercury House,Triton Court,14 Finsbury Square,London,EC2A 1LQ