How does a Cheque Clear?

The whole process involving a cheque transaction is called a cheque clearing cycle or cheque clearing process.

A cheque transaction would include mainly three entities. They are, the financial institution where the cheque can be presented for payment which is the drawee, the person who is receiving the money from the account holder who is the payee, and the depositor who writes the cheque is the drawer or maker.

The cheque transactions would also include at least one endorsee which would probably be the financial institution servicing the payee’s account or in some cases it may be a third party to whom the payee owes or wishes to give the money.

Mostly the payee will present the cheque received from the drawer to a branch of the drawee bank and cash the cheque there or he will deposit the cheque accepted by him in an account at the payee’s bank and will have the bank process the cheque. In case a cheque is refused at the drawee bank or if the cheque is returned from the drawee bank to the payee’s bank where it was deposited because of insufficiency of funds in the drawer’s account to clear the cheques the cheque is said to have bounced.

If there is sufficient money then the cheques will be approved and all appropriate accounts involved would be credited. Then the cheque will be stamped with some kind of payment mark such as a “paid” stamp. The cheque will now be called a paid cheque and it is placed in the account holder’s file. The transaction is maked in account holder’s file and you can see it in your next bank statement.

There is always a chance of cheques being lost, going astray within the cycle, or getting delayed if further verification is needed in the case of suspected fraud and getting bounced some times after it has been deposited. Due to these reasons the usage of cheques is losing favour.