Anyone running a business needs to have a clear understanding of funds availability, as it refers directly not only to the amount of money they have in a bank account, but also to how much of that money can be utilised. It is a phrase which refers to how long a bank will be holding money before the account holder can draw on that money. A failure to understand that different types of deposit are held for a different period of time before the funds become available could lead to an account holder making payments which the bank is unable to honour. This could be embarrassing or inconvenient for an individual but deeply damaging for the reputation of a business which has to cope with payment types as varied as cash, cheque, BACS and Direct Debit.
How holding money policies vary
The funds availability policies published by banks are based on a legislative framework set out by industry regulators, within which each bank may opt to offer slight variations. In addition to this, there are differences in the time spent holding money before the funds become available which depend upon factors such as:
How the money was deposited into the account
When the money was deposited into the account – with reference to the actual time of a working day on which a deposit was made
The amount of money in an account, and whether any overdraft facility is available
Why are banks holding money?
The main driver behind banks holding money is that it protects them against the possibility of payments which have been made into your account returning to the payee. On many deposits, depending on the method used to pay a deposit into an account, it can take a few days for the actual funds to be transferred. During this period, if the banks weren’t holding money deposited, you would be able to use the funds to make purchases. If it then transpired that a cheque bounced or the account in question lacked the funds to cover a transfer, the money would have to be transferred back to the payee, leaving you as the account holder to deal with the cost of a returned cheque as well as an unexpected overdraft and any associated fees and charges.
Funds availability for different types of deposit
Cash deposit made in person at a branch – same day or next working day
Cash deposit made at a branch ATM or as a night deposit – second working day after deposit
Cash deposit made at the ATM of a different branch – five working days after the deposit
BACS transfer – up to two working days after transfer takes place
Cheque deposited using a mobile app – funds available immediately or in up to two working days
It’s important to bear in mind the fact that each bank will have a cut-off time, and that any funds deposited after that time will be treated as if they landed on the next working day. The cut-off time varies for individual banks and building societies, so it’s vital to find out and to track exactly when deposits are made in order to be certain of the true level of funds availability you can draw upon.
How long does a cheque take to clear?
The simple answer to this question is to remember the sequence ‘2-4-6’. This refers to the following:
After 2 working days you’ll be earning interest on the money deposited via a cheque
After 4 working days you’ll be able to draw on that money – i.e. spend the funds in question
After 6 working days the money is definitely in your account and cannot be returned
We can help
If you’re interested in finding out more about funds availability, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.