Cheque Clearing

Consumer Guide: Paying by Cheque

Businesses Guide: Payment by Cheque

How long does it take for a cheque to clear?

First, it is important to clarify the definition of "clearing": it is the process through which financial institutions (FIs) exchange cheques and other payment items that they have accepted.

In most cases, when a cheque is deposited at an FI, it is sent that evening to the nearest processing centre serving that FI. There, cheques are sorted according to the financial institution that holds the account of the cheque writer (i.e. the payor’s account). The cheques are then delivered to the processing centre serving the payor’s FI. This exchange, or "clearing", usually occurs the evening of the day the cheque was deposited. However, in some situations, such as deposits made late in the day, on the weekend or through an Automated Banking Machine, clearing may not occur until the evening of the next business day.

After clearing, the cheque must still be returned to the branch that holds the cheque writer’s account (or the unit of the FI that acts on behalf of the branch) to confirm that it can be honoured. Within Canada, this process generally takes from one to three business days. If the cheque cannot be honoured - for example, due to insufficient funds, a stop payment order or a forged signature - it will be returned to the branch that accepted it. The return voyage will also generally take from one to three days but could take longer in some circumstances.

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How long can a financial institution place a hold on funds when a cheque is deposited?

A financial institution’s decision to place a hold on funds is a proprietary matter and is outside the scope of the CPA’s clearing rules. However, if a financial institution decides to place a hold on funds, one important factor it will consider is the number of days likely to be required for the cheque to reach the branch that holds the account on which it was written and, in the event that the cheque is dishonoured, its subsequent return to the branch that accepted it.

More detailed information on the reasons for holds on cheques and the factors that financial institutions may consider in placing them is available in Holds on Cheques: A Means of Managing Risk.

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How long does the financial institution that holds the account on which the cheque is written have to return it through the clearings?

In most circumstances, once the cheque has been received by the branch that holds the payor’s account (or the unit of the financial institution that acts in its place), it has one business day to decide whether the cheque will be honoured or dishonoured. If the cheque is dishonoured, under Rule A4, Section 5, the financial institution has until the next business day to initiate its return through the clearings. As noted above, the return journey to the branch that initially accepted it may take a number of days.

There are some exceptions to the next business day rule, as listed in Rule A4, Section 6. In case of a forged endorsement on the back of the cheque, the drawee financial institution (i.e. the institution that makes the decision whether to honour the cheque) has 6 years* from the date of receipt to initiate the item’s return through the clearing. The drawee institution may not have a direct relationship with the person who endorsed it, so it is difficult to verify that the endorsing signature is valid. Consequently, considerable time may be required to uncover a forgery.

* Amendments to Rule A4 came into effect on June 23, 2008 to shorten the return timeframes for items that are incorrectly amount-encoded, exchanged in the wrong currency, or that bear a forged endorsement. Items received by the Drawee prior to June 23, 2008 that are incorrectly amount encoded or that were exchanged in the wrong currency retain 12 month return time frame that was in effect prior to the June amendments. If an item is received by the Drawee on or after June 23rd, the new 90 day return time frame applies. The same applies for items being returned for the reason Forged Endorsement – there is no time limitation for return of items received by the Drawee prior to June 23rd. Any items received on or after June 23rd that contain a forged endorsement will have a return time frame of six years.

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Is there a time limit for a financial institution to withdraw funds from my account due to a cheque’s return?

The CPA Rules do not deal with the recovery of funds from a customer, as this is a matter that is generally governed by the account agreement between the financial institution and the customer.

Although most cheque returns through the clearing system occur within 10 business days, some returns may happen much later. For example, a cheque bearing a forged endorsement has a longer return timeframe, since it may take longer to uncover the forgery. Once the returned cheque has been received, the financial institutions will generally debit the account to which it was deposited as soon as possible.

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Can a certified cheque ever be returned through the clearings?

Under the clearing rules, a certified cheque may be returned for only three reasons:

  • the cheque bears a forged endorsement on the back of the cheque;
  • the cheque is missing a signature required as an endorsement on the back of the cheque; or
  • the cheque has been altered in a material way subsequent to its certification, such as a change to the name of the payee or the amount.

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What happens if a post-dated cheque is accepted and processed to my account before the due date?

Under CPA Rules, a post-dated cheque is not eligible for clearing and therefore should not be deposited before the due date. However, given the large volume of cheques and the degree of automated processing, some post-dated items may inadvertently slip through.

Under Rule A4, Section 6(b), a payment item may be returned through the clearing by a CPA member financial institution for the reason "post-dated" up to and including the day prior to the due date. Once the due date is reached, the payment item cannot be returned for the reason "post-dated".

A customer with concerns about a post-dated cheque being processed to his or her account should raise them with his or her financial institution. If the institution is notified within the timeframe described above, the cheque can be returned through the clearing. Questions about overdrafts as a result of the early processing of post-dated items should also be addressed to the financial institution.

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When is a cheque considered stale-dated, and is it no longer valid after that point?

Under CPA Rule A4, Section 22, a cheque is considered stale-dated after six months, unless it has been certified. Although it may be returned through the clearing for that reason, there is no obligation to do so, and the payor’s financial institution may still accept it as a valid payment item. An institution accepting a cheque that is dated more than six months earlier may choose to contact the payor’s financial institution to confirm whether the cheque will still be accepted.

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What happens if my financial institution processes a cheque to my account even though I had placed a "stop payment" order on it?

This issue is outside the scope of CPA rules and should be addressed to the financial institution.

By way of general information, CPA Rules provide for the return of payment items through the clearing due to a stop payment order within the "one business day window" explained above. To identify and return a cheque that is subject to a stop payment order within this timeframe, a financial institution may require several details related to the cheque, including:

  • the date that appears on it
  • the name of the payee
  • the exact amount in dollars and cents
  • the cheque number

Inaccurate or incomplete information about the cheque may hinder the financial institution’s ability to identify and return the cheque within the timeframe permitted.

Customers initiating a stop payment order should also verify with their financial institution how long it will remain in effect.

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Can I print my own cheques?

Yes, but there are some practical issues to consider before deciding to do so. Before printing and issuing any cheques, we strongly encourage you to speak to your financial institution to discuss your plans and present a sample so that any potential processing problems can be addressed at this stage.

One of the key issues is that the ability to automate the processing of cheques depends on several features. These include the use of special ink in the Magnetic Ink Character Recognition (MICR) line at the bottom of the cheque and the standard positioning of elements such as the transit number and the account number. These requirements are outlined in CPA’s Standard 006 (Standards and Specifications for MICR-Encoded Documents)

Cheques that do not meet these requirements must be processed manually and thus could be subject to delays. In addition, given the time and cost incurred to process non-standard cheques, financial institutions may levy fees for their use.

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What are my rights if the payee named on the cheque endorses it over to me, and it is subsequently returned?

The CPA Rules deal only with the clearing and settlement of payment items; therefore this issue is outside their scope.

By way of general information, the Bills of Exchange Act deals with the negotiation of payment items (e.g. endorsing a cheque over to another person) and defines the rights of all parties to a cheque, including the person to whom it has been endorsed.

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Why am I receiving images of my cheques with my bank statement instead of my original cheques?

As part of the evolution of their services to clients, many financial institutions (FIs) are introducing or expanding image-based services to clients. As with other banking services, the features and details of image-based services may vary somewhat between financial institutions. Questions related to services and products offered by your financial institution should be discussed with your FI directly.

With respect to the retention and destruction of cheques, the applicable retention period is governed by "banking law" requirements generally and various legislation and regulations, such as the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. Those regulations expressly permit retention of an image in place of a cleared or deposited cheque (provided certain conditions are met).

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