Whether a cheque has cleared or not is not as simple as it sounds

Bouncing cheques are a big problem for small businesses.

And it's partly a problem because the banks often say cheques have been cleared when they haven't.

Sometimes, as we will find out, it is a case of deliberate fraud on the part of the person who has sent the cheque.

In fact, whether or not a cheque has cleared is a lot more complicated than it sounds. So what should you do to feel secure?

Suspicious

Peter Hounslow from Dulverton in Somerset has a terrible tale.

He received an order for sofas over the internet but was suspicious when the cheque he received for the goods was more than the amount owed.

"I paid in a cheque (£9,950 for the goods order, plus an additional £3,814 too much) to my Nat West bank account on the 1st October," says Mr Hounslow.

He was then contacted by the sender of the cheque and asked if he could pay back the additional money as it had been a mistake.

"On the 6th October I enquired at the bank as to whether the cheque had cleared and was informed that it had and that funds were available. I then transferred £3,814 (the excess) back to the payee on the strength of that information," says Mr Hounslow.

"Two days later I had cause to be suspicious and asked again at the bank if the cheque had cleared. I received the same answer. A few days later the cheque turned out to be a fake.

"What I understood to have been said at the bank is disputed by them and my account has been debited to the tune of £9,950.

"I would not have transferred any money if I was uncertain as to whether the cheque had cleared or not.

"It seems there is a big difference between a cheque being cleared and funds in the account," he adds.

Confusion

We investigated the matter and it appears that in the banking world there is a phrase called 'given value'.

This is the official phrase, and the only phrase that counts, for when your money is absolutely guaranteed to be there.

As a result, if you are told by your bank that a cheque has 'cleared' this does not technically mean that you are safe to proceed.

"If you are worried about a payment you need to ring your bank and ask if you can withdraw funds safely on the cheque," says Mark Bowerman of the Association for Payment Clearing Services."

"If you are advised that this is the case and something goes wrong then you should have a case against your bank," he adds.

Security

For those people worried about the movement of funds there are three possible ways to transfer money.

The least secure is cheque clearing. This is what Mr Hounslow used. It takes five days at a cost of around 67p in bank charges.

The second way is via the Banks Automated Clearing System (Bacs). This takes three days and is very secure.

Finally, there is the Clearing House Automated Payment System (Chaps).

This is electronically transferred the same day and is totally secure. It costs about £25 - £30.

Investigation

We asked Nat West about Mr Hounslow's situation.

"Such occurrences are very rare - less than 0.009% of the cheques we deal with are returned after five days," says a Nat West spokesperson.

"In these very rare instances, our approach... is to investigate in the first instance and any action is considered on a case by case basis," they add.

The bank has now agreed to look into Mr Hounslow's case.

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