A clearing bank is a member of a national check clearing network that can approve or clear checks for payment, even if they are not written on accounts associated with that bank. They can expedite the transfer of funds and offer protection to beneficiaries.
A clearing bank is a banking institution that is a member of a national check clearing network that has the ability to approve or clear checks for payment, even if those checks are not written on accounts associated with that bank. Typically, a clearing bank is a commercial bank. Depending on the structure of the system or network involved, the bank may be limited to clearing checks written on accounts associated only with that network, although some networks have reciprocal agreements with other national networks to quickly evaluate and clear checks written outside the network. financial institutions network.
The role of a clearing bank can often help expedite the transfer of funds from the payer’s account to the payee’s account. Depending on the policies of the individual clearing network, it may mean that on the day the check clears, the face value of the check is credited to the payee’s account and also debited to the payer’s account, even if they do not have accounts in the same institution. This type of activity can often be very useful in business situations involving a large sum of money. For example, if the payee holds goods or services for the payer until the check clears, the clearing bank’s action means that the products are released in a shorter period of time, allowing the payer to receive those products sooner.
A clearing bank may also work with member banks to manage electronic fund transfers or standing payments between payer and payee accounts that are associated with more than one bank. In the case of a standing payment, this simply means that the funds are withdrawn from the payer’s account, processed through the clearing bank, and then deposited to the payee’s account the same day. One-time fund transfers can also be managed in the same basic way, making it possible to send a payment that posts in a matter of hours if needed.
It is important to note that a clearing bank also offers the beneficiary a certain level of protection. Since the clearing process requires funds to cover the check to be present in the payer’s account at the time the evaluation begins, the payee is guaranteed that it will only be credited if the payer has the funds available to pay the check. This prevents the payee from receiving and depositing a worthless check, or a counterfeit check that is written on a closed or non-existent account. From this perspective, the clearing bank’s work can be seen as an effective tool to protect bank clients from falling victim to scam or similar type of fraudulent activity.
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