October 2017 will see one of the biggest shake ups to the English banking system in years, as the laborious cheque clearing system is forced to acknowledge 21st century technology.
Traditionally, once a business or personal cheque is paid into a bank account, the account holder can look forward to waiting six whole working days before the money is classed as being available in their account.
Why so long?
It’s simply because a cheque is currently considered to be a type of legal documentation which must be presented to the recipient’s bank in its original form. This often means that it needs to be physically transported around the country before it can be received and processed by the correct bank.
As a result, account holders are informed that it can take up to two working days before they can earn interest on the deposit, four working days to be able to withdraw the money and six working days before the cheque is classed as cleared and it is certain that it will not be returned unpaid.
Under the new system, banks will rely not on the paper cheques themselves but on digital imaging, to prove that the cheques have been presented, thus slashing delays caused by transportation.
Paper cheques are likely to remain in use and written out in the same way. On receipt, individuals can choose either to use their mobile banking app to scan an image of the cheque to be deposited or physically deposit it at their bank, where staff will create an image and send it off electronically to the relevant bank. It may be that businesses will be issued with their own scanning devices for bulk cheque deposits.
It has been reported that Barclays Bank has already introduced this service and permits cheques up to the value of £500 to be scanned through its mobile phone app. However, other banks and building societies are lagging behind and it is thought that it will be another 12- 18 months before the technology has been entirely adopted.
For business owners, the launch of this new technology could potentially be both a blessing and a problem at the same time. Issued cheques will no longer take a few days to be processed and so funds are likely to be taken from your business bank account within 24 hours of the cheque being presented. Conversely however, any cheques received into the business will also mean that funds can be withdrawn according to the same timescale.
With regards to the order and supply of materials, the new system will undoubtedly enable businesses to order supplies needed to fulfil a customer’s order without waiting five additional days for a cheque to clear and the funds to become available. The outcome of this will ensure that the flow of goods in and out of storage will become faster, so improving customer service levels.
The new convenience of paying in cheques using scanning functions linked to banking apps will surely be appreciated by the time-poor self-employed person, who will no longer have to make the necessary trip to the bank to deposit a cheque.
Although specific details about timescale and how the system will work in practice remain sparse, business owners need to be prepared for this technological change which will undoubtedly have an impact on cashflow, ordering and storage functions. Planning should include aspects of security and financial management, to ensure that when the system fully goes live, there is minimum impact on manufacturing, productivity and supply. In this way, the customer should not be negatively impacted in any way, but should receive a faster and higher quality level of service.
Malcolm Trotter is CEO of International Association of Bookkeepers.
Further reading on cheque system changes
