Cheques to clear in one day

Legislation has been introduced to reduce the present maximum six-day clearance process, to just one day.

Banks presently send the payer’s cheque to the clearing banks to facilitate clearance. Under new rules, that will apply from October 2018, this will be reduced to one-day by sending a digital image of the cheque for clearance. To do this, banks will use a common Image Clearing System (ICS).

This should all but eliminate the present, confusing process where cheques are debited to your statement but may not be cleared to draw against for days.

Following consultation with interested parties HM Treasury have agreed that customers have the right to a copy their cheque, together with other useful information.

For those interested in the detail of their response HM Treasury said:

In 2015, HM Treasury introduced measures in the Small Business, Enterprise and Employment Act to allow UK banks and building societies to introduce the Image Clearing System (ICS) for cheques. ICS is an innovation that cuts down cheque clearing times from a possible six days to one day by sending a digital image of the cheque for clearing, rather than the paper cheque itself.

In November 2017, HM Treasury consulted on proposals to make provision for two measures in secondary legislation to support the introduction of the ICS:

  • That a copy of a paid cheque (or other paper instrument), along with some additional information, be provided to the payer upon his or her request, and that the copy can be used as evidence of payment
  • That if a customer paying using a cheque incurs a loss in connection with the presentment of a cheque under the ICS (that did not result from gross negligence or fraudulent activity on their part), and has not received compensation, the payee’s bank must compensate this customer for this loss. If the paying bank incurs a loss (in the event they have already paid out compensation to the customer) the payee’s bank must compensate the payer’s bank.

The aim of the proposed legislation is to ensure that the ICS, which will clear all cheques by October 2018, has no detrimental impact on the existing position of cheque users.

The Government has considered these representations and …, upon request, paying banks will have to provide a copy of the cheque together with:

  • confirmation of the decision of the banker that the payment should be made (including automated decisions); the date that the decision was made (or the date upon which the automated decision was made);
  • the value of the payment made;
  • the sort code and account number of the paying customer (drawer of the cheque);
  • any reference number allocated by the banker authorised to collect payment of the instrument (used to identify the payment instrument).

This will ensure that customers have the right to a copy of their cheque, together with useful information, while minimising the burden on industry.

Businesses that are still receiving cheque settlement of their invoices will be pleased by this announcement as it effectively reduces the credit they are obliged to give customers by up to one week.

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