From now on, the banking industry has said, all cheques paid into UK bank accounts will be cleared within a maximum of six working days.
Previously, banks could recoup money from a customer's account if they found the original cheque payment was bogus. In theory, there was no time limit on the bank's right to claw back cash. This led to instances where customers paying in cheques were told the funds had cleared but then had the money debited weeks or even months later. Put simply, cheques never cleared with absolute finality.
In addition, the banks have pledged that interest earnt on cheque payments will be credited no more than two days after paying in.
The reforms, first announced a year ago but only coming into force now, have been welcomed by consumer groups and small businesses. "For the first time, smaller firms have been assured that their money will be safely in their accounts within six days," said Len Collinson, chairman of the Forum for Private Business. "This will enable them to be more assured in managing their cash flow, with a far greater degree of clarity."
The popularity of cheques has declined sharply in recent years, due to increased card use. But it is still a key means of payment for small businesses.