Cut in cheque processing time boosts business cash flows

 

Central Bank of Kenya governor Njuguna Ndung’u delivers his remarks as KBA chairman Jeremy Awori (right) looks on during the announcement of T+1 cheque clearing cycle process at CBK’s clearing house July 31, 2013. Photo/Diana Ngila  Nation Media Group

By GEORGE NGIGI

In Summary

• This means that a cheque deposited on Monday will have matured by Wednesday, unlike currently when processing such a cheque takes up to Thursday.
• CBK governor said cheque frauds had dropped with the introduction of the imaging system and usage of cheques to make payments had increased.

Businesses are set to get a boost in their cash flow cycles following automation of cheque processing, which will cut banks’ clearance time by one day beginning mid next month.

This means that a cheque deposited on Monday will have matured by Wednesday, unlike currently when processing such a cheque takes up to Thursday.

The Central Bank of Kenya (CBK) and commercial banks have jointly been improving their operating systems to reduce the time it takes to settle cheque payments following the introduction of cheque truncation, an automated system that allows processing based on electronic images.

“Bank customers will benefit by accessing their funds at a much shorter time to conduct economic activities,” said CBK governor Njuguna Ndung’u Wednesday at a media briefing.

Introduction of cheque truncation in 2011 eliminated the need for physical movement of cheques to a central clearing point in Nairobi, and then to the paying bank, for confirmation of the issuer’s signature and sufficiency of funds.

Under the current system, banks scan the cheques and the images are sent back and forth to process payment.

Banks standardised their cheque books to ensure that clerks in all institutions are looking out for the same security features and are able to confirm they are genuine on collection. 

With the physical transportation of cheques no longer necessary, classification of branches into local, upcountry, and remote — where the cheques from remote branches take up to 10 days to clear-- has ended.

ALSO READ: Banks stop charges for upcountry cheque clearance

Implementation of the cheque truncation process has also saved banks costs of hiring courier companies.

“We don’t have zero days because you still have the basic duty of ensuring the cheques are genuine and for the intended payee,” said the chairman of the Kenya Bankers Association and Barclays Bank managing director, Jeremy Awori.

Safaricom is contracted to provide network connectivity across the industry so as to facilitate the bulk transfer of messages.

The telecommunication giant has outsourced the infrastructure of Jamii Telecom and Kenya Data Network, but is currently laying down its own cables.

The governor said cheque frauds had dropped with the introduction of the imaging system and usage of cheques to make payments had increased.

In May, the banks processed 2.5 million cheques valued at Sh236 billion. The long cheque processing period has made customers to prefer other systems such as mobile payments, real time gross settlements and electronic fund transfers.