Collection of cheques

Collecting banker

• A collecting banker is one who has assumed duty of collecting the proceeds of a cheque for the customer or himself.

• When he collects the proceeds for the customer, he acts as his agent.

Duties of a collecting banker

• Collection of instruments: as his customer’s agent in the matter, the banker is bound to use reasonable skill, care and diligence in presenting and securing payments of the instruments entrusted to him for collection and placing the proceeds to his customer’s account, or taking such other steps as may be proper to secure the customer’s interest.

• It is therefore the duty of the collecting banker to collect and place the proceeds of both cheques and drafts for his customer’s account.

• Establish the bona fides of the account holder.– The banker must make enquiry to ascertain the

bona fides of the person who desire to become his customer. If the banker omits to do so or does not take proper introduction or reliable reference from the proposed customer he will be committing the breach of duty.

• Examination of crossings: the collecting banker must examine minutely all the crossings and cheques handed over to him for collection.

• If the customer gives him a cheque crossed specially to any banker, he should not accept it for collection.

• Similarly, a cheque crossed “account payee only” should be collected only for the payee named in the cheque and for no one else.

• Examination of indorsements:while making payment the paying banker normally relies on the collecting banker’s discharge. Therefore, it is very important duty of the collecting banker to examine all the indorsements and other material parts of all cheques and drafts before presenting them for collection, and giving the discharge on the instruments.

• Notice of dishonour: if a cheque is dishonored on presentation, it is the duty of the collecting banker to inform his customer accordingly.

• If the banker fails to do so the customer may ask him for compensation for any loss which he would have suffered because of not being informed of dishonor of the cheque.

• Moreover, the banker is entitled to debit a dishonored cheque to his customer’s account in case he has already credited it.

• The cheque should be specially crossed when it is received for collection by the collecting banker. If a cheque received by the banker is not crossed generally, he must ask the customer to cross it. Special crossing is also necessary and is done by the banker himself. The collecting banker is not protected in case of open cheques.

• The collection must be done in good faith and without negligence. ’Good faith’ for a banker means acting honestly as a collecting banker; and it is assumed to be operative unless proved otherwise. In order to prove having collected without negligence, a banker should take all such steps which a prudent businessman would take to guard himself against adverse effects.

• If a banker ignores the stop-payment instructions received from his customer; accepts irregular indorsements on the instruments; opens a current or saving account without proper documentation; or ignores the “account payee” crossing to collect proceeds for a person otherwise than a payee, he will be acting with negligence.

Clearing house

• In the big towns of Pakistan many commercial banks operate.

• As there are various banks so are there customers. The use of cheques has become very convenient for making payments.

• These cheques are drawn on different banks by different customers of the banks.

Clearing house

• Mr Saeed has his account at MCB. He gives a crossed cheque to Mr Nadeem who deposits it at HBL where he has the account and the amount is credited after the cheque is cleared.

• The question of how the HBL gets the funds from MCB is the essence of “clearing system”.

Clearing house

• The bankers clearing house therefore is an institution set up for the purpose of settling quickly the claims by one bank against the others.

• Representatives from each bank which operates in the same town will meet once daily. They will exchange instruments drawn on them by their various customers.

Clearing

• The banking function in which cheques of other banks are collected in to our customers accounts

• SBP or NBP(where SBP is not available) acts as the clearing agent between the banks.

• All banks have their account with the SBP/NBP for clearing the balances.

• Function completes in 2 days.

Clearing

• Each bank after collection of all the cheques send them to their respective branches for clearance.

• The net difference of cheques received and sent to each bank are settled on the same date between the banks after settling the returned and paid cheques.

Inward Clearing

• Cheques issued by our branch’s account holders to others who are maintaining their account in some other banks/branches.

• These cheques are presented to our branch for collection.

Outward clearing

• Cheques issued by other banks/ branches account holders to our branch’s account holders.

• These cheques are presented to other banks/ branches for collection.

Outward clearing• Each cheque is to be checked for its validity.• Scrutiny of cheques:

– That cheque is crossed but not specially crossed to any other bank.– The cheque is drawn on a local bank.– The cheque is not mutilated or torn.– There is no unauthorized alterations in the cheque.– The cheque is not post dated or stale.– The amount in words and figures is the same.– The cheque should not bear crossing or clearing stamp of another

bank/branch.– In case of heavy amount cheques care must be exercised if the

account is new or not satisfactorily maintained or if average balance is not satisfactory.

Outward clearing• After verification the collecting bank will cross the instrument specially in

its own name.• The cheque will be stamped with clearing stamp.• The clearing date will be the next working date.• A confirmation stamp for payee’s account credited will be affixed on the

reverse of the cheque.• Outward clearing are the funds deposited by our customers in their

accounts.• Customer accounts are given provisional credit i-e funds cannot be drawn.• Clearing returns are received late in the evening or in the morning of next

day.• First thing is to debit the accounts in which instruments have been

returned unpaid.

Inward clearing

• Instruments drawn on our branch are presented at our counters in the morning before the start of the public dealings.

• Instruments are to be cleared on priority basis.• All instruments are payments from our branch, these

have to be debited to customers accounts against the credit to main branch’s principle account.(HO account).

Inward clearing

• The branch does not initiate separate entries for inward/outward clearing but the difference of outward and inward clearing is vouched as per schedule received along with the clearing.

• If outward clearing is excess than inward principle office debit voucher is vouched and vice versa.

• N.I.F.T• National institutional facilitation technologies.