What is cheque truncation?

Cheque TruncationCheque truncation is:

  • the stopping of the physical movement of the cheque instrument,
  • lifting the image and financial information from it, and
  • transmitting it electronically either within a bank or between participant banks via a Clearing House.

It is a process which reduces cost, risk and time related to cheque processing.

In the past, traditional cheque clearing could take between 4 and 15 days. It was dependent on the movement of the instrument.  These days, truncation enables much shorter clearing periods.

Why introduce cheque truncation?  

Although cheque volumes are reducing globally, the cheque is still an important means of transacting. Cheque truncation overcomes the following obstacles of traditional methods, which:

  • take a long time,
  • are insecure in that items may be removed or replaced,
  • are costly i.e. the cost of moving items is high, and the cost of the infrastructure is high (large reader/sorters).In the current environment, the volume is decreasing but the cost of the existing infrastructure remains as is. As a result, as the volumes decline, the cost per item increases.By introducing truncation we can significantly reduce the cost of item processing.

What are the benefits of cheque truncation?

  • Efficiency – the time taken for the cheque clearance process is reduced as there is no need for the physical movement of cheque instruments between the banks.
  • Reduced Risk – As there is no physical movement of cheques from one bank to the other, there is far less risk of items being lost or substituted for any reason.
  • Automation – Cheque Truncation enables banks to have enhanced capture, verification and reconciliation processes.
  • Security – Fraud is significantly reduced;
    • By the cheque truncation process;
    • By an effectively deployed workflow based system

    Most countries implement cheque truncation together with new and modern cheque standards which assist with fraud elimination.

    Cheque truncation has removed geographic restrictions such as very long distances and times to move items between locations.

    In Conclusion

    Cheque truncation extends the use of a legacy payment type by making it much more effective. This is particularly important in the many countries where other alternatives, such a modern EFT clearing and settlement systems, are not available or very expensive to implement

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