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How Cheque Cashing Works

GoCardless
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Last editedDec 20212 min read

Cheque-cashing services provide immediate payment in exchange for a cheque. This can literally be cash or can be paid into a bank account. Cashing a cheque is much faster than depositing a cheque into a bank account and waiting for it to clear. It can, however, be expensive.

The background to cheque cashing

In the UK, the first cheque was issued on 16th February 1659. Printed cheques were developed in the 1760s. Standard UK cheques can still take three to five working days to clear. The exact timing depends partly on when you deposit them and whether you deposit them at a bank counter or via another channel.

Cheques usually have to be deposited by 3.30pm to be considered part of that day’s processing-cycle. If they are deposited after that, they are considered part of the next working day’s processing-cycle. If they are deposited via an ATM or a Post Office then you usually need to add an extra day to the process to allow for the extra administration and transport.

This last point has become increasingly relevant as banks have closed physical branches in response to customers largely moving online. Even customers in cities are likely to find themselves having to make an effort to deposit a cheque at a bank or Post Office. This goes very much against the established business principle of focusing on customer convenience.

How does cheque cashing work?

There are two reasons for using cheque-cashing services. One is to avoid having to make a long trip (and face a long queue) to deposit a cheque in a bank or Post Office. The other is to have quicker access to the funds.

If your priority is to have quick access to the funds, it may be worth looking into cheque cashing at a bank. Some banks will expedite the clearing process, usually in return for a fee.  This may be more economical than usual a commercial cheque-clearing service.

Alternatively, you can go directly to a commercial cheque-clearing service. As a rule of thumb, a real-world business that offers short-term loans will probably offer a cheque-clearing service. Each cheque-cashing service will have its own rules about what type(s) of cheques it accepts and how much it charges for its service.

If you are interested in using a cheque-cashing service, it’s really important to be absolutely clear on the cheque-cashing fees. For example, some cheque-cashing services may charge a percentage while others may charge a flat fee. Some may have different fees for different types of cheques depending on the level of risk involved.

The future of cheque-cashing services

The UK was supposed to end the use of cheques in 2018. That didn’t happen. There were two main reasons for this. Firstly, elderly people sometimes have a strong preference for traditional payment methods, especially cash and cheques. Secondly, many small businesses were heavily reliant on cheques for both taking and making payments.

This is, however, very much in the process of changing. Even elderly people are adapting to new payment methods, in part due to the effects of the COVID-19 pandemic. Small businesses are now largely abandoning them in favour of more efficient payment options such as GoCardless.

GoCardless offers a massively flexible solution for companies of all sizes. For example, businesses can integrate it with accounting packages such as Xero, Sage and Quickbooks.  In this way, they can issue invoices on a recurring or ad-hoc basis, collect them easily (and securely) and have them reconciled automatically.

Businesses that don’t (yet) use accounting software can set up recurring and ad-hoc payments directly from the GoCardless dashboard. They can also use GoCardless’ new Instant Bank Pay service to collect one-off payments without any waiting time.

We can help

If you’re interested in finding out more about cheque cashing, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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