Cheque truncation clearing
Asha Rao deposits a paper cheque written by Demo Trading Ltd. Northstar Bank captures the image and truncates the paper, Cheque Clearing Co exchanges the image, Bank Alfa checks the drawer's funds, the day's net settles between the banks, and Asha's provisional credit becomes final. Cheque Clearing Co is a fictional image-exchange operator. (SYNTHETIC / TRAINING ONLY)
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Asha deposits the cheque
Asha Rao (payee) → Northstar Bank (collecting bank) · cheque deposit
Asha pays a paper cheque into Northstar, her collecting bank, at a branch or through the mobile app. The cheque is an instruction from Demo Trading to its bank, Bank Alfa, to pay Asha.
Step 1 of 8: Asha deposits the cheque
- 02ProcessingNorthstar captures the image and truncates the paperNorthstar Bank (collecting bank)
- 03PostingNorthstar credits Asha provisionallyNorthstar Bank (collecting bank)
- 05ProcessingBank Alfa checks the drawer's funds and signatureBank Alfa (drawee / paying bank)
- 06SettlementThe day's net settles between the banksBank Alfa (drawee / paying bank) → Northstar Bank (collecting bank)
- 07PostingNorthstar makes Asha's credit finalNorthstar Bank (collecting bank)
- 08ProcessingAsha's funds are confirmed availableNorthstar Bank (collecting bank) → Asha Rao (payee)
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- 02ProcessingNorthstar captures the image and truncates the paperNorthstar Bank (collecting bank)
Northstar scans the cheque into a digital image and the details printed along its bottom, then stops the paper from travelling any further — this is truncation. From here the image does the clearing, not the physical cheque.
- 03PostingNorthstar credits Asha provisionallyNorthstar Bank (collecting bank)
Northstar shows the money in Asha's account as a provisional credit — visible, but not yet certain. The paying bank can still return the cheque, so the funds are not final until the return window has passed.
- CR Asha Rao's account at Northstar (provisional) — GBP 4,750.00
- 05ProcessingBank Alfa checks the drawer's funds and signatureBank Alfa (drawee / paying bank)
Bank Alfa checks that Demo Trading has the money, that the cheque has not been stopped, and that the signature and details are in order. This is the checkpoint that decides whether the cheque is paid or returned.
- 06SettlementThe day's net settles between the banksBank Alfa (drawee / paying bank) → Northstar Bank (collecting bank)
Asha's cheque settles inside the day's net figure between Bank Alfa and Northstar — all the cheques each bank owes the other collapse into one movement in central bank money. Only now does money actually move between the banks.
- DR Bank Alfa settlement account — GBP 4,750.00
- CR Northstar settlement account — GBP 4,750.00
- 07PostingNorthstar makes Asha's credit finalNorthstar Bank (collecting bank)
The cheque was paid and the return window has passed, so the provisional credit becomes final. Bank Alfa has also debited Demo Trading. The money is now genuinely Asha's.
- DR Demo Trading Ltd's account at Bank Alfa — GBP 4,750.00
- CR Asha Rao's account at Northstar — GBP 4,750.00
- 08ProcessingAsha's funds are confirmed availableNorthstar Bank (collecting bank) → Asha Rao (payee)
Northstar confirms the money is cleared and can be spent or withdrawn. The provisional line Asha saw on deposit day is now a settled, final balance.
What this simplifies: One cheque, one clearing exchange, direct participants only. Real cheque truncation exchanges many images per cycle and settles the net, with return windows and re-presentment rules each system defines. Cheque Clearing Co is fictional and amounts are illustrative.
Sources for this flow2
- Market practiceMarch 2003 edition
A glossary of terms used in payments and settlement systems ↗ — CPSS (now CPMI), Bank for International Settlements
Terminology has evolved since this edition; newer CPMI publications refine some definitions.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
What this simplifies: One cheque shown in isolation inside what is really a day's net exchange of many cheques between banks; illustrative amounts. Cheque/CoP scheme-specific operational detail was not re-verified against primary operator docs this pass (environment egress limits).
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.