Dishonoured cheques are cheques that a bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honour a cheque, with non-sufficient funds (NSF) being the most common one, indicating that there are insufficient cleared funds in the account on which the cheque was drawn. An NSF check may be referred to as a bad check, dishonored check, bounced check, cold check, rubber check, returned item, or hot check. Lost or bounced checks result in late payments and affect the relationship with customers. In England and Wales and Australia, such cheques are typically returned endorsed "Refer to drawer", an instruction to contact the person issuing the cheque for an explanation as to why it was not paid. If there are funds in an account, but insufficient cleared funds, the cheque is normally endorsed “Present again”, by which time the funds should have cleared.
Magnetic ink character recognition code, known in short as MICR code, is a character recognition technology used mainly by the banking industry to streamline the processing and clearance of cheques and other documents. MICR encoding, called the MICR line, is at the bottom of cheques and other vouchers and typically includes the document-type indicator, bank code, bank account number, cheque number, cheque amount and a control indicator. The format for the bank code and bank account number is country-specific.
Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.
The Check Clearing for the 21st Century Act is a United States federal law, Pub. L. 108–100 (text)(PDF), that was enacted on October 28, 2003 by the 108th U.S. Congress. The Check 21 Act took effect one year later on October 28, 2004. The law allows the recipient of the original paper check to create a digital version of the original check, a process known as check truncation, into an electronic format called a "substitute check", thereby eliminating the need for further handling of the physical document. In essence, the recipient bank no longer returns the paper check, but effectively e-mails an image of both sides of the check to the bank it is drawn upon.
A giro transfer, often shortened to giro, is a payment transfer from one bank account to another bank account and initiated by the payer, not the payee. The debit card has a similar model. Giros are primarily used in Europe; although electronic payment systems exist in the United States, it is not possible to perform third-party transfers with them. In the European Union, there is the Single Euro Payments Area (SEPA), which allows electronic giro or debit card payments in euros to be executed to any euro bank account in the area.
Cheque fraud, or check fraud, refers to a category of criminal acts that involve making the unlawful use of cheques in order to illegally acquire or borrow funds that do not exist within the account balance or account-holder's legal ownership. Most methods involve taking advantage of the float to draw out these funds. Specific kinds of cheque fraud include cheque kiting, where funds are deposited before the end of the float period to cover the fraud, and paper hanging, where the float offers the opportunity to write fraudulent cheques but the account is never replenished.
The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising:
A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay the amount of money stated to the payee.
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. This process turns the promise of payment into the actual movement of money from one account to another. Clearing houses were formed to facilitate such transactions among banks.
A Bank State Branch is the name used in Australia for a bank code, which is a branch identifier. The BSB is normally used in association with the account number system used by each financial institution. The structure of the BSB + account number does not permit for account numbers to be transferable between financial institutions. While similar in structure, the New Zealand and Australian systems are only used in domestic transactions and are incompatible with each other. For international transfers, a SWIFT code is used in addition to the BSB and account number.
Sort codes are the domestic bank codes used to route money transfers between financial institutions in the United Kingdom, and in the Republic of Ireland. They are six-digit hierarchical numerical addresses that specify clearing banks, clearing systems, regions, large financial institutions, groups of financial institutions and ultimately resolve to individual branches. In the UK they continue to be used to route transactions domestically within clearance organisations and to identify accounts, while in the Republic of Ireland they have been deprecated and replaced by the SEPA systems and infrastructure.
A banker's draft is a cheque provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on another bank or payable through or at a bank.
In banking, a post-dated cheque is a cheque written by the drawer (payer) for a date in the future.
Remote deposit or mobile deposit is the ability of a bank customer to deposit a cheque into a bank account from a remote location, without having to physically deliver the cheque to the bank. This was originally accomplished by scanning a digital image of a cheque into a computer then transmitting that image to the bank, but is now accomplished with a smartphone. The practice became legal in the United States in 2004 when the Check Clearing for the 21st Century Act took effect, though banks are not required to implement the system.
The substitute check is a negotiable instrument that represents the digital reproduction of an original paper check. As a negotiable payment instrument in the United States, a substitute check maintains the status of a "legal check" in lieu of the original paper check as authorized by the Check Clearing for the 21st Century Act. Instead of presenting the original paper checks, financial institutions and payment processing centers transmit data from substitute checks electronically through either the settlement process, the United States Federal Reserve System, or by clearing the deposits based on private agreements between member financial institutions. Financial institutions that process substitute checks based on these private agreements are typically members of a clearinghouse that operate under the Uniform Commercial Code (UCC).
In banking, a lockbox is a service offered to organizations by commercial banks to simplify collection and processing of accounts receivable by having those organizations' customers' payments mailed directly to a location accessible by the bank.
A demand draft (DD) is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee).
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank of India (RBI), commenced in 2010, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.
Canada Trustco Mortgage Co v Canada, is a significant case of the Supreme Court of Canada on the intersection of the Income Tax Act and the Bills of Exchange Act and the ability to seize funds that have been deposited by a debtor into an account held at a financial institution in Canada.
A substitute check or cheque, also called an image cash letter (ICL), clearing replacement document (CRD), or image replacement document (IRD), is a negotiable instrument used in electronic banking systems to represent a physical paper cheque (check). It may be wholly digital from payment initiation to clearing and settlement or it may be a digital reproduction (truncation) of an original paper check.
