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Written by Cecilia Chee, Singapore   
Monday, 03 October 2011 12:12



CBS around the world



The Cheques Act 1986 is the body of law governing the issuance of cheques and payment orders in Australia. Procedural and practical issues governing the clearance of cheques and payment orders are handled by Australian Payments Clearing Association (APCA).

In 1999, banks adopted a system to allow faster clearance of cheques by electronically transmitting information about cheques, this brought clearance times down from five to three days. Prior to that cheques had to be physically transported to the paying bank before processing began. If it was dishonoured, it was physically returned.

All licensed banks in Australia may issue cheques in their own name. Non-banks are not permitted to issue cheques in their own name but may issue, and have drawn on them, payment orders (which functionally are no different from cheques).


In Canada, cheque sizes and types—as well as endorsements requirements and MICR tolerances are overseen by the Canadian Payments Association (CPA)

It is possible to write cheques in currencies (using the standardised ISO currency names) that are not in Canadian Dollars.

Canadian cheques can legally be written in English or French or Eskimo–Aleut languages.

Personal cheques in Canada are sold directly from financial institutions through commercial suppliers.

Business cheques in Canada are also sold directly through financial institutions at the branch or online through commercial suppliers.

A tele-cheque is a paper payment item that resembles a cheque except that it is neither created nor signed by the payer—instead it is created (and may be signed) by a third party on behalf of the payer. Under CPA Rules these are prohibited in the clearing system effective 27 January 2004.


Cheques were introduced in India by the Bank of Hindustan, the first joint stock bank established in 1770.

In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalising the usage and characteristics of instruments like the cheque, the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.

In 1938, the Calcutta Clearing Banks' Association, which was the largest bankers' association at that time, adopted clearing house

New Zealand

Instrument-specific legislation includes the Cheques Act 1960, part of the Bills of Exchange Act 1908, which codifies aspects related to the cheque payment instrument, notably the procedures for the endorsement, presentment and payment of cheques. A 1995 amendment provided for the electronic presentment of cheques and removed the previous requirement to deliver cheques physically to the paying bank, opening the way for cheque truncation and imaging. Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying bank’s branch, instead of the cumbersome physical presentment. This reduced the total cheque clearance time, as well as eliminating the costs of physically moving the cheque.

The registered banks under supervision of Reserve Bank of New Zealand provide the cheque payment services. Once banked, cheques are processed electronically together with other retail payment instrument.

United Kingdom

In the UK all cheques must now conform to "Cheque and Credit Clearing Company (C&CCC) Standard 3", the industry standard detailing layout and font, be printed on a specific weight of paper (CBS1), and contain explicitly defined security features.

Since 1995, all cheque printers must be members of the Cheque Printer Accreditation Scheme (CPAS). The scheme is managed by the Cheque and Credit Clearing Company and requires that all cheques for use in the British clearing process are produced by accredited printers who have adopted stringent security standards.

The rules concerning crossed cheques are set out in Section 1 of the Cheques Act 1992 and prevent cheques being cashed by or paid into the accounts of third parties. On a crossed cheque the words “account payee only” (or similar) are printed between two parallel vertical lines in the centre of the cheque. This makes the cheque non-transferable and is to avoid cheques being endorsed and paid into an account other than that of the named payee. Crossing cheques basically ensures that the money is paid into an account of the intended beneficiary of the cheque.

Following concerns about the amount of time it took banks to clear cheques, the United Kingdom Office of Fair Trading set up a working group in 2006 to look at the cheque clearing cycle. They produced a report[16] recommending maximum times for the cheque clearing which were introduced in UK from November 2007.[33] In the report the date the credit appeared on the recipient's account (usually the day of deposit) was designated "T". At "T + 2" (two business days afterwards) the value would count for calculation of credit interest or overdraft interest on the recipient's account. At "T + 4" clients would be able to withdraw funds (though this will often happen earlier, at the bank's discretion). "T + 6" is the last day that a cheque can bounce without the recipient's permission—this is known as "certainty of fate". Before the introduction of this standard, the only way to know the "fate" of a cheque has been "Special Presentation", which would normally involve a fee, where the drawee bank contacts the payee bank to see if the payee has that money at that time. "Special Presentation" needed to be stated at the time of depositing in the cheque.

Cheque volumes peaked in 1990 when four billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the C&CCC, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings. As volumes started to fall, the challenges faced by the clearing banks were then of a different nature: how to benefit from technology improvements in a declining business environment.

Although the UK did not adopt the euro as its national currency when other European countries did in 1999, many banks began offering euro denominated accounts with chequebooks, principally to business customers. The cheques can be used to pay for certain goods and services in the UK. The same year, the C&CCC set up the euro cheque clearing system to process euro denominated cheques separately from sterling cheques in Great Britain.

The UK Payments Council from 30 June 2011 withdrew the existing Cheque Guarantee Card Scheme in the UK. This service allowed cheques to be guaranteed at point of sales up to a certain value, normally £50 or £100, when signed in front of the retailer with the additional cheque guarantee card. This was after a long period of decline in their use in favour of debit cards.

The Payments Council proposed to withdraw the use of cheques altogether in the UK and had set a target date for this of 31 October 2018. However, on 12 July 2011, the Payments Council announced that after opposition from MPs, charity groups and public opinion, the cheque will remain in use and there would no longer be a reason to seek an alternative paper-initiated payment.

United States

In the US, cheques (spelled "checks") are governed by Article 3 of the Uniform Commercial Code, under the rubric of negotiable instruments.

An order check — the most common form in the US — is payable only to the named payee or his or her endorsee, as it usually contains the language "Pay to the order of (name)."

A bearer check is payable to anyone who is in possession of the document: this would be the case if the cheque does not state a payee, or is payable to "bearer" or to "cash" or "to the order of cash", or if the cheque is payable to someone who is not a person or legal entity, for example if the payee line is marked "Happy Birthday".

A counter check is a bank cheque given to customers who have run out of cheques or whose cheques are not yet available. It is often left blank — hence sometimes called a "blank check", though this term has other uses — and is used for purposes of withdrawal.

In the US, the terminology for a cheque historically varied with the type of financial institution on which it is drawn. In the case of a savings and loan association it was a negotiable order of withdrawal (compare Negotiable Order of Withdrawal account); if a credit union it was a share draft. Checks were associated with chartered commercial banks. However, common usage has increasingly conformed to more recent versions of Article 3, where check means any or all of these negotiable instruments. Certain types of cheques drawn on a government agency, especially payroll cheques, may be called a payroll warrant.

At the bottom of each cheque there is the routing / account number in MICR format. The routing transit number is a nine-digit number in which the first four digits identifies the US Federal Reserve Bank's cheque-processing center. This is followed by digits 5 through 8, identifying the specific bank served by that cheque-processing center. Digit 9 is a verification check digit, computed using a complex algorithm of the previous eight digits.

Typically the routing number is followed by a group eight or nine MICR digits that indicates the particular account number at that bank. The account number is assigned independently by the various banks.

Typically the account number is followed by a group of three or four MICR digits that indicates a particular cheque number from that account.

Fractional routing number (U.S. only)—also known as the transit number, consists of a denominator mirroring the first four digits of the routing number. And a hyphenated numerator, also known as the ABA number, in which the first part is a city code (1–49), if the account is in one of 49 specific cities, or a state code (50–99) if it is not in one of those specific cities; the second part of the hyphenated numerator mirrors the 5th through 8th digits of the routing number with leading zeros removed.

A draft is a bill of exchange which is not payable on demand of the payee. (However, draft in the US Uniform Commercial Code today means any bill of exchange, whether payable on demand or at a later date; if payable on demand it is a "demand draft", or if drawn on a financial institution, a cheque.)

Cheque truncation was introduced in 2004 with the passing of the "Check Clearing for the 21st Century Act" (or Check 21 Act), this allowed the creation of electronic substitute checks to replace the physical cheques, reducing cost and processing time.

Last Updated on Monday, 03 October 2011 13:25
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