Cheques Collection and Payment procedure

The clearing process begins with the deposit of a cheque in a bank. The cheque (along with other cheques) is delivered to the bank/branch where it is drawn. The cheque is passed for payment if the funds are available and the banker is satisfied about the genuineness of the instrument.

The cheques that are unpaid are returned to the presenting bank through another clearing called the Return Clearing. The realization of the funds occurs after the completion of return clearing and by the absence of an unpaid cheque.

Cheques Clearing Cycle:

Following steps are to be taken during clearance of cheque:

Step 1st:

The customer

Step 2nd:

The PRESENTING BANK where cheques are presented by payee for deposit in his / her a/c.

Step 3rd:

The RCC:

Regional collecting centre- to collect all cheques from their presenting branch.

Step 4th:

Clearing House:

To collect cheques from RCC and for settlement of cheques.

Step 5th:

Drawee’s RCC:

Again, they collect cheques from the clearing house and send to their drawee bank.

Step 6th:

Drawee Bank:

It collects cheques from their RCC and debits the customer a/c.

Settlement of Funds:

The settlement of funds in clearing occurs at several levels. The aggregate amount or value of cheques presented by a bank on other banks represents the claim by that bank on other banks. All the banks on every other bank in the clearing make similar claims.

A net settlement is arrived at the clearinghouse and the debit or credit position of the bank is determined. These are booked in their current accounts maintained by the settling bank. This represents the inter- bank settlement. The settlement of funds between the service branch and the branch concerned represents the transfer of funds to the branch level.

The payment process is completed only when the funds are debited from the drawer’s account and credited to the payee’s account. This occurs after the completion of the return clearing mentioned.

Inter-branch clearing:

Cheques presented by customers drawn on different branches of the same bank need not be sent to the clearing house as the transfer of funds is internal to the bank. The service branch usually acts as a settlement branch for the branches and the instruments are sent to the drawee branches while the inter-branch accounts are credited or debited internally.

Time Required

Generally, if a cheque is to be paid within the same city (local cheque), it would take 2-3 days. In some large cities, there is a system called High Value Clearing, which facilitates completion of cheque clearing cycle on the same day, and the customer depositing the cheque is permitted to utilize the proceeds next day morning.

However, coverage of this High Value Clearing is very limited and usually available at the branches in the main business area; say Fort and Nariman Point area in Mumbai and Connaught Place in New Delhi.