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A cheque is a written order by an account holder to his banker to pay a specified sum of money to the bearer or named recipient. A cheque is not legal tender but is a legal document, the use of which is governed by the Bills of Exchange Act 1882, and the Cheques Acts of 1957 and 1992. Although Cheques were first used in the late seventeenth century, they did not come into general use until the second quarter of the nineteenth century. However, their usage did not start to significantly increase until after the mid 1960s when there was a marked increase in the number of bank account holders and cheque guarantee cards were introduced.
Cheque Clearing Cycle The clearing process involves the transmission and settlement of payments between accounts held at different banks and different branches of the same bank. The cheque clearing operates on a three-day processing cycle: Day One – A cheque paid into a Member bank (or one of their agencies) anywhere in Britain during the course of a day’s business will normally be processed by the collecting bank that evening. At the collecting bank clearing centre the cheque information is passed electronically through a secure data exchange network (called the Inter Bank Data Exchange, IBDE) to the appropriate paying bank clearing centre.
Day Two – The next day the cheque is delivered to an Exchange Centre, where Members of the cheque clearing hand over all the cheques drawn on the other banks and collect all the cheques drawn on themselves. Day Three – On the morning of the next working day, bank staff will review the cheques presented for payment and make decisions about whether to pay or return them. Settlement between the Members, for the net values of the cheques exchanged between them, takes place over their Bank of England settlement accounts on day three.
83% of adults have an account with a cheque facility at a bank or building society. 94% of adults have some form of bank or building society account In total nearly twelve million cheques and credits are cleared each working day. Cheque volumes reached a peak in 1990 but usage has fallen since then, mainly owing to increased use of plastic cards and direct debits by personal customers. However, cheques remain popular in the business sector for paying suppliers. Overall cheque volumes are expected to continue to fall from a level of 2. 8 billion in 1999 to about 1. 7 billion by 2009.