How Do Cheques Work?

While not as common as card payments and bank transfers, cheques remain a valid form of payment within the UK. If you’re unfamiliar with this traditional paper-based payment, you might be wondering, ‘how do cheques work’ for buyers and sellers? We’ll break down how cheques work below so that you know what to expect from the clearing process.

What are cheques?

A cheque is a formal document used by a bank account holder to pay a person or business with funds from their account. The cheque includes all details needed to facilitate the transaction, including the appropriate account number, payment amount, and date of issue. It’s authorised with the cheque writer’s signature, which is verified by the bank for security. For a cheque to ‘clear’ for approval, there must be adequate funds in the payer’s bank to cover the intended payment.

How do cheques work in the UK?

You’ve received a cheque as payment. What happens now? To better understand how cheques work, we’ll break down what happens from start to finish during the cheque clearing process.

• Step 1: You take the paper cheque to your bank or scan it into your online banking app. Its details are registered with your bank as well as the payer’s bank. You should be able to see the funds in your account at this stage, though they may be marked as pending.

• Step 2: The bank rounds up all cheques at the end of the working day and submits them as a batch to a centre for clearing.

• Step 3:  The original cheque arrives at the clearing centre, usually the next morning. During the clearing process, the sort code, serial number, account number, and amount will be collected and sent electronically to the originating bank for approval.

• Step 4: The electronic details are picked up by the originating bank from an exchange centre. The bank verifies that the payer has adequate funds in their account to cover the payment.

• Step 5: While the payer’s bank verifies the details, the transaction appears on their bank statement. If there are insufficient funds, this could cause the cheque to ‘bounce’ or be declined.

• Step 6: Once the cheque is approved, money is taken from the payer’s account and transferred to the payee’s account. At this stage, the payee can cash the cheque and withdraw the funds.

The full process can take up to six days. Up until this point, there’s the danger that the cheque will bounce.

How to write a cheque

If you want to write a cheque, you’ll need to include the following key details:

• Date

• Payee’s name

• Amount written in words

• Amount written numerically

• Your signature

It’s a good idea to be as specific as possible with the payee’s name. Some banks recommend writing the account holder’s bank next to their name for added clarification. However, you don’t need to know their bank account number.

How do bank cheques work?

Also called corporate cheques or bank drafts, bank cheques offer a guaranteed method of payment. While individual cheques can bounce if the payer doesn’t have sufficient funds in their account, bank cheques are paid in advance. How do bank cheques work, exactly? First, you purchase a bank draft or cheque from your bank, either in person or online. The funds will be debited directly from your account, and a cheque issued. You can then use it as payment to individuals or businesses.

If you’re looking for a faster payment method than bank or personal cheques, you might want to consider using online payment options or bank transfers instead. GoCardless can pull recurring Direct Debit payments directly from the customer’s account without waiting days for clearance. It’s safe, secure, and speedy for all parties involved.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.