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Payment of Cheques

Payments

Over the Collection

counter through bank

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 CLEARING

 It is a system by which banks

exchange cheques & other
negotiable instrument drawn on
each others within specified
areas & thereby secure
payments for their specified
clients through the clearing
house at specified times
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 Development of Clearing

 Before 1775
 Development of Clearing

 A bank clearing clerk named Irvin

originated the idea which finally
led to the establishment of the
London Clearing House at
Lombard Street in 1775

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 Inland Clean Bills for
collection

Local Bills Outstation Bills

(within city) (Outside City)

Bills Bills Bills Bills Drawn Bills Brawn

Drawn Drawn on on
drawn Outstation Outstation
on on Other on Other Branches Branches
same Branches Banks of Same of other
of Same Bank banks
branch
Bank

Collected by
Internal Transfer
Clearing
transfer Delivery
Department
 Role of SBP in Clearing

 Being central bank, SBP is

responsible for smooth
operation of clearing system.
Here SBP acts as bankers’ Bank
 NBP performs this function on
behalf of SBP where office of
SBP do not exist

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 Clearing Membership

 All scheduled banks are full fledged

members of clearing house
 Non-scheduled banks can be sub-
members through a scheduled bank
 Application in writing with nominal
fee is needed for membership
 The membership ceases when a
bank ceases to be a scheduled bank

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 Rules & Regulations of
Clearing House

 Each member bank has to send

its representative daily
 Each bank is required to ensure
proper stamping of cheques
 SBP recovers working expenses
and furniture/fixture cost from
banks

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 Lifecycle of a Check
Pay BANK B
Check
BANK B 200
200
Pay BANK L
Pay Local 350
bills Clearinghouse
Deduct 550
from BANK U
Check
BANK L
350
BANK U deducts
550 from account

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 Lifecycle of a Check
Pay bills
Check to
from your
bookstore
account at
200
BANK U

Check to
landlord
350
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Lifecycle of a Check
BANK B

Local
Clearinghouse

BANK L

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Lifecycle of a Check
Pay BANK B
200
Pay BANK L
350
Deduct 550 from
BANK U

BANK U deducts 550 from

your account
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 Lifecycle of a Check
Pay BANK B
Check
BANK B 200
200
Pay BANK L
Pay Local 350
bills Clearinghouse
Deduct 550
from BANK U
Check
BANK L
350
BANK U deducts
550 from account

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Clearing Process (After 1775)
Branch

Central Bank

Branch

Main Branch
Branch
 Special clearing

 In addition to the special clearing

some times special clearing is also
arranged
 This is done due to rush of work like
near Eid holidays
 On first working day of half yearly &
yearly closing (30th June & 31st
December) also special clearing is
arranged
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 What are the
advantages of clearing ?

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 CLEARING
ADVANTAGES
 It dispenses with the physical
transfer of currency from one bank
to another
 Enables customers to secure cash
quickly
 It has made possible the
widespread use of cheques
 It has helped the commercial banks
to attract more accounts & thus
more deposits
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 Is There Any Protection
Under Law Available To The
Collecting Banker ?

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 Protection Available To
The Collecting Banker

 Section 131 of N.I.Act 1881

Conditions essential for obtaining
protection:
 Cheque must be crossed

 Payment must be received by the

banker on behalf of the customer
 Collecting banker must act in good
faith

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 Protection Available To
The Collecting Banker
 It has been advised by SBP to
ensure collection of cheques on
behalf of customers only.
 In case of erroneously received
cheques same should be
returned to drawee bank or to
the drawer within maximum 72
hours

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 SUSPICIOUC INFORMATION

 It has been advised by SBP to

ensure collection of cheques on
behalf of customers only.
 In case of erroneously received
cheques same should be returned
to drawee bank or to the drawer
within maximum 72 hours

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 CLEARING

OUTWARD CLEARING

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 CLEARING
OUTWARD CLEARING AT
BRANCHES
Receipt of instrument
Instrument must be accepted on the
Bank’s pay-in-slip
Deposit slip should contain
Instrument number
Name of drawee bank and branch
Signature of depositor

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 CLEARING
OUTWARD CLEARING AT
BRANCHES

 Immediately on receipt on
instrument
Affix bank crossing & clearing stamp
on the face of the instrument
Proper discharge on the reverse of
instrument
Depositor account number on the
reverse for ease of any subsequent
reference

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 CLEARING
OUTWARD CLEARING AT
BRANCHES

 Particulars of instruments are

entered in the system in the
following sequence so as to
prepare computerized outward
clearing register
S.No Bank Instrument Amount Depositor Account
No. No.

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 CLEARING
OUTWARD CLEARING AT
BRANCHES
 Computerized bank wise schedule is
prepared in duplicate one copy of
which is retained in the branch while
other copy is sent to the main
branch along with instruments
 Consolidated bank wise summary is
also prepared in duplicate one copy
of this is sent to the main branch
along with outward clearing

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 CLEARING
OUTWARD CLEARING AT BRANCHES

VOUCHERING
DR- Clearing House Suspense Account
Being the amount of cheques sent in
outward clearing
CR-Parties’ Accounts
Being the amount of clearing cheques (No
withdrawal is allowed until fate is
received)

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 CLEARING
OUTWARD CLEARING AT BRANCHES

DR-MO Account Main Branch

Being the amount of cheques sent & realized

DR-Parties’ Account
Being the amount of cheques returned unpaid

CR-Clearing House Suspense Account

Being the amount of cheques sent

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 CLEARING
OUTWARD CLEARING AT BRANCHES

 Instruments returned unpaid are

given back to the account
holders after entering in the
“cheque Returned Register”
 Before returning the instrument
following stamp must be affixed
on the back
“All our Stamps cancelled”

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 Guidelines for giving
discharge on instruments

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 CLEARING
guidelines for giving discharge on
instruments

 If instrument is Payees account

Bearer/open, credited
drawn in favor of a limited company
 If instrument is bearer but crossed
“Account Payee only”
 If instrument is bearer but crossed
generally( & Co/ Not negotiable)
drawn in favor of a Ltd. CO.

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 CLEARING
guidelines for giving discharge on
instruments

 If instrument is Payees account

order credited
(whether crossed or not but being
deposited in payee’s account

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 CLEARING
guidelines for giving discharge on
instruments

If instrument is Payees account

bearer& & crossed credited
Either generally (&Co.)
Or crossed Not Negotiable, drawn
in favor of a limited company

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 CLEARING
guidelines for giving discharge on
instruments

If instrument is Ist payee’s

Order & crossed endorsement
Generally & being confirmed 2nd
deposited in payee’s account
credited
endorsee’s account

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 CLEARING
guidelines for giving discharge on
instruments

If instrument is Mutilation

confirmed
Mutilated but being
Credited to a well
Known customers Payees account
Account as payee credited

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 CLEARING
guidelines for giving discharge on
instruments

If instrument is
Collected as agent
For another bank

Collecting bank
discharge/endor
sement
confirmed
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 CLEARING
guidelines for giving discharge on
instruments

In case DD being Disbursement

Deposited in a well Guaranteed
known customer’s
Account as payee Payees account
credited

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 CLEARING
guidelines for giving discharge on
instruments

 In case of cheque Payees account

Being collected credited
In special clearing for payee

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 OUTWARD CLEARING AT
MAIN BRANCH

 Bank wise consolidated summary is

prepared on the strength of summaries
received from the branches
 Physically number of instruments is
checked from the summary of each
branch
Bank Cheques Amount
HBL 23 1,179,150
Citi Bank 14 1,151,769

ABL 33 2,344,568

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 OUTWARD CLEARING AT
MAIN BRANCH

 In the last column of the

consolidated summary cheques
received from other banks in the
inward summary are entered by our
representative in the clearing
house

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 Outward Clearing at SBP/NBP

 Cheques are exchanged by the

representatives of banks
 Total amount of cheques received from
other banks are entered in clearing
house book against each bank
 Declaration forms are completed &
submitted to the clearing house
 Clearing house register is completed
from declaration forms

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Outward Clearing at SBP/NBP

 Debit & credit of register, if equals

clearing house book is supposed to
be balanced
 Entries are made in the ledger
maintained by the supervisor of the
clearing house
 Clearing now received in exchange
of our outward clearing shall be
called as our inward clearing

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 Interbank Settlement
System
Payments by the banks

Is owed Alpha Beta Gamma Sums

owed to
Net
owed to
Owes all each
Receipts

banks bank

Alpha - 50 10 40
Bank
60
Beta 40 - 25 15
Bank 65
Gamma 60 30 - (55)
Bank 90
Sums owed 215 0
by all banks
100 80 35
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INWARD CLEARING

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 What Protections Are
Available To The Paying
Banker ?

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 Protection to paying
Banker

 Section 85 (1) N.I.Act, 1881

 Where a cheque payable to
order purports to be endorsed
by or on behalf of payee the
drawee is discharged by
payment in due course

payment in due course

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 Crossings
Section 127 N.I.A.
Payment of cheque crossed specially
more than once
where a cheque is crosed specially
to more than one banker, except
when crossed to an agent for the
purpose of collection, the banker on
whom it is drawn shall refuse
payment thereof

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 Crossings
PAYMENT OF CROSSED CHEQUES
Section 125-A N.I.A
Crossing a material part of cheque
Secrion 126 N.I.A
Payment of cheque crossed generally
Where a cheque is crossed generally, the
banker on whom it is drawn shall not pay it
otherwise than to a banker
Payment of cheque crosed specially
Where a cheque is crosed specially, the
banker on whom it is drawn shall not pay it
otherwise thant to the banker to whom it is
crossed, or his agent for collection
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 Payment in due course
of crossed cheques

 In accordance with sec.10

 Section 128 (Payment in due
course of crossed cheques)
• As per general crossing
• As per special crossing(s)

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 INWARD CLEARING AT
BRANCHES

 Instruments with schedules &

consolidated figure on a main
schedule are received at branches
from the main branch
 The amount of each instrument is
entered in the inward clearing
register
 The grand total of inward clearing
register should be tallied with the
total of main schedule received from
the main branch
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 INWARD CLEARING AT
BRANCHES

 The schedules are detached

and filed separately along with
main schedule(house page)
 Instruments are handed over to
respective departments
 Incase of insufficient balance
enquiry is made from different
departments.

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 INWARD CLEARING AT
BRANCHES

 In case of return of instruments

following procedure is adopted
a) Cheque return memo is prepared
with specific reason for return
b) Entry is made in cheque return
register
c) A separate schedule & a house
page is prepared

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 INWARD CLEARING AT
BRANCHES

 DR:Parties Accounts
 CR:MO Account Of Main Branch

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DIFFERENCE IN CLEARING

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DIFFERENCE IN CLEARING
Reasons for difference in clearing
 Omission : Cheques attached with
the schedule but omitted to be
written
 Double entry of the same cheque
 Amount of instrument taken wrongly
or paisas omitted
 Mistake in totals of schedule
 Cheque lodged in outward clearing,
entries are made in books but left in
the branch undelivered
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DIFFERENCE IN CLEARING

EXCESS PAYMENT RECEIVED

 In the inward clearing if the mount of
house page or schedule received is
less than the amount instruments
received
OR
 The amount of house page /schedule
sent is less than the instruments
delivered in outward clearing

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DIFFERENCE IN CLEARING

To overcome this difference we:

CR- Sundry Deposit Account
Difference in Clearing
Next day following entries are passed
DR-Sundry Deposit Account Difference
in Clearing
CR-Bills Payable Account Pay Order
Issue

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 DIFFERENCE IN CLEARING
LESS CREDIT RECEIVED
 If the amount of house page or
schedule received in inward clearing
is more than the amount of
instruments received
 Amount of house page or schedule
sent is less than the instruments
delivered
 It means we are less & we have to
receive a pay order from another
bank
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 DIFFERENCE IN CLEARING

 For balancing our books we

pass following entry
 DR- Suspense Account
Clearing Adjustment
 On the receipt of pay order
reversal entries are passed

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