Cheques Clearing Process Overview in DOP Finacle

Cheque clearing is the process of moving a cheque from the bank in which it was deposited to the bank on which it was drawn, and the movement of the money in the opposite direction. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn.

Inward Clearing :

Inward clearing is a process whereby the HO dealing with clearing house receives various types of negotiable instruments that are drawn on it by the customers.

An employee handling Inward Clearing operations in the HO dealing with Clearing House will receive a bunch of inward cheques from the local clearing house for processing. He has to scrutinize them and enter them in an Inward Clearing zone and Pass or Reject them.

Given below are some of the key terms used in inward clearing process.

Terms		Description
1	Clearing	Process through which different Banks/Financial Institutions exchange the instruments (cheques, Demand Drafts and so on) drawn on them
2	Clearing House	A place where representatives of Banks meet at specified times, to exchange instruments and workout the net balances against each other
3	Drawee bank	The Bank on whom the instrument is drawn.
4	Collecting Bank	The Bank that presents the cheque, collects the proceeds and credits it to the beneficiary’s account
5	Payee / Beneficiary	The person to whom the proceeds(amount) of the instrument need to be credited.
6	Outward reject	A cheque which is sent in outward clearing but is rejected by the other bank for various reasons.  It is captured in the inward clearing process
7	Inward  reject	Instrument received as a part of inward clearing and returned to the presenter Bank/Branch on account of non-payment for a specified reason.
8	Instrument	Any Negotiable instrument  like Cheque/Demand Draft/Interest Warrant/Dividend Warrant etc.
9	Zone code	All the member banks meet at Clearing House at specified time.  This can happen more than once in a day depending upon the business volume/places/necessity Each such Meeting is termed as a “Zone” in Finacle.
10	Transaction code (TRAN. CODE)	Denotes the type of instrument such as, SB account cheques, Demand draft, Dividend warrant, etc.

Outward Clearing :

A Customer of Post Office deposits a cheque for collection, drawn on another bank

Counter PA at SO will prepare a cheque list and send to the HO for clearing.

An employee handling Outward Clearing operations in the HO will receive a bunch of outward cheques from Customers and SOs for clearing. He has to scrutinize them and enter them in the Outward Clearing zone and prepare a cheque list and send to the Clearing House for clearing.

Given below are some of the key terms used in the outward clearing process.

Terms		Description
1	Clearing	The members (Post offices, Banks or FIs) of a Local Clearing House exchange the instruments (cheques, Demand Drafts and so on) drawn on them and issued by them for debiting and crediting the proceeds respectively, through a net settlement process.
2	Clearing House	A place where representatives of all FIs meet at specified time, to exchange instruments and workout the net balances against each other.
3	Clearing Zone	A Zone in Finacle identifies the time and instrument-value-based segregation. For example, there could be separate zone for High Value Instruments, MICR instruments and non-MICR instruments.  Instruments are lodged and sent to clearing house depending on the segregation and on the time to the clearing house.
4	Drawee Post Office/FI/Bank	The Post Office which receives the instrument drawn on it.
5	Collecting Post Office/FI/Bank	The Post Office that presents the cheque and collects the proceeds from the drawee Post Office, and credits it to the beneficiary’s account.
6	Beneficiary	The person to whom the proceeds of the instrument need to be credited.
7	Outward Clearing	Any instrument that is sent for collection and the proceeds are realized.
8	Inward Clearing	Instruments drawn on the accounts of customers and received for collection from other institutions on behalf of their customers.
9	Outward Reject	Any instrument that is sent for collection and is returned unpaid.
10	Inward Reject	Any instrument which is received for clearing and is returned to the presenter Bank/Branch on account of non-payment for any reason.
11	Instrument	An instrument is referred to any Negotiable instruments like Cheque, Demand Draft, Interest Warrants, Dividend Warrants and the likes.
12	Sort/MICR code	Sort code is a 9 digit clearing MICR code where the first 3 digits is a city code, next 3 digits isa bank code and the last 3 digits is the branch code.
13	Float balance	It is a sum of all the instruments which are lodged in outward clearing zones for the day.
14	Shadow balance/ un-cleared balance	During outward clearing, the Post office releases the credit to the customer’s account. However, that amount is unavailable for withdrawal because the instrument presented by the customer is subject to realization at the drawee branch.
15	Release to Shadow Balance	A process of crediting the proceeds of funds in clearing to the customer’s accounts, but will not be made available for withdrawal.
16	Regularization	The amount that has been marked as a shadow balance is made available to the customer.
17	Set	A bunch of pay-in-slip/credit vouchers and instruments (Cheque, Demand Draft, Banker’s Cheque and the like) where the credit leg (Amount as per pay-in-slip/credit vouchers) and the debit leg (Amount as per cheque, Demand draft, Bankers cheque) is balanced.