Since January this year, all commercial banks in Kenya have officially implemented the Cheque Truncation System (CTS), a new electronic cheque clearing system that has reduced the number of days it takes for bank cheques to clear to 2 days from 4 days, leading to advantages for individuals and businesses.

Inquiries made with Barclays Bank and NIC Bank confirmed that these banks currently take 2 working days to clear cheques, while cheques submitted at Equity Bank and Cooperative Bank currently take 3 working days to clear. Cheques submitted belonging to the same bank however take a shorter period of even one day to clear.

“The exchange of electronic cheque images is faster than was the case for physical cheques hence the benefit of shorter clearing period. This benefit has been well received by the bank customers”, said Emmy Kiptugen who is a member of the Operations & Technical Committee at the Kenya Bankers Association. Before cheque truncation was implemented last year, cheques submitted at commercial banks would need to be physically compiled and sent to the central clearing house leading to the 4 day waiting period.

Julius, a student at a Nairobi University who receives his allowance via a cheque every month, says it has become easier to organise his monthly finance and expenditure since cheque truncation came to effect. “When cheques took four days to clear, I would have to sometimes borrow money from friends to survive for the last few days of the month. Nowadays, I only have to wait two days after dropping the cheque at the bank making things much easier at the end of the month.”, he said.

Small and medium-sized businesses which are commonly paid using cheques have also experienced the benefit of the Cheque Truncation System. “The cheque waiting period has reduced significantly such that cash- flow is now more bearable”, said Jedida who operates Tradewinds International Cargo Ltd, a clearing and forwarding business. “Before, the waiting period was actually 5 days including the day you got the cheque”, she added, describing how it takes 3 working days until funds are reflected in her accounts because the day the cheque is submitted is not counted as part of the 2 day clearing cycle. Another Nairobi-based business owner who supplies stationery revealed that he now has an easier time meeting monthly overheads and salaries since his customer credit periods have shortened with the 2 day cheque waiting period.

Apart from shorter cheque clearing periods, benefits to bank customers with the new system are faster turn-around times on cheque inquiries because the cheque images are readily available on electronic storage media, and improved cheque security though new features on the CTS cheques including a watermark and the use of ultraviolet sensitive paper. Additionally, reduced cheque handling costs mean that bank customers no longer incur a commission for cheques clearing upcountry, Ms. Kiptugen told us.

The Cheque Truncation process starts when digital images of physical cheques and their details are captured at the branch level, and then uploaded by each bank into that particular bank’s own cheque clearing centre for initial sorting after which the cheque images are forwarded to the Automated Clearing House for final sorting and disbursement to the various banks, Pesatalk learned from an official at the Kenya Bankers Association (KBA)

Implementation of the Cheque Truncation System is the biggest milestone to affect Kenya’s cheque clearing system since 1998 when automation of the Nairobi Clearing House saw the cheque clearing cycle reduce from 14 days to 4 days, a CBK report on payment system says. The report adds that incentives for the Government to roll out the Cheque Truncation System were to reduce cheque handling costs and improve the overall efficiency of the cheque payment system.

Kenya’s implementation of the Cheque Truncation System has put her at par with developed countries such as the United States which officially implemented cheque truncation in October of 2004 according to the Federal Reserve. Despite the growth in popularity of mobile based and electronic funds transfer systems, cheques payments still transferred the second most amount of money in Kenya as of June 2011 according to the CBK Annual Report 2010 -11.