Comprehensive definitions of cheque processing, banking, and fintech terminology. From MICR to endorsement, understand the language of modern payments.
A unique identifier assigned by a bank to identify a specific account. Combined with the routing number, it ensures funds are credited to the correct account.
Example: Your account number appears on your cheques following the routing number in the MICR line.
A signature alone on the back of a cheque without any restrictions. Converts the instrument to bearer form, payable to anyone holding it.
Example: Simply signing the back of a cheque creates a blank endorsement, making it negotiable by anyone.
A financial institution or organization that facilitates the exchange of payments, securities, or derivatives transactions between banks and financial institutions.
Example: The Automated Clearing House (ACH) processes electronic payments between banks in the United States.
The conversion of a physical cheque into an electronic image for processing. The physical cheque is removed from the clearing process after imaging.
Example: When you deposit a cheque via mobile banking, truncation occurs as the physical cheque stays with you while the image is processed.
A temporary cheque obtained directly from a bank branch, typically used when a customer has run out of regular cheques.
Example: If you need to write a cheque immediately but left your chequebook at home, you can get a counter cheque at your bank.
A personal cheque that the bank has verified is backed by sufficient funds and has earmarked those funds for that specific payment.
Example: A landlord might require a certified cheque for a security deposit to guarantee the funds are available.
A cheque drawn directly from a bank's own funds rather than a customer's account. Considered as good as cash.
Example: For large purchases like a car, sellers often require a cashier's cheque for security.
A form of fraud where someone writes cheques between accounts at different banks to create artificial balances before the cheques bounce.
Example: Writing a cheque from Bank A to deposit in Bank B, then writing another from Bank B to cover the first before they clear.
A type of fraud where criminals use chemicals to remove ink from a cheque, then rewrite it with new payee and amount information.
Example: A fraudster steals a cheque for $50, washes off the details, and rewrites it for $5,000 to themselves.
A record-keeping tool used to track cheques written, including date, payee, amount, and running balance.
Example: Recording each cheque in your register helps you know exactly how much money is available in your account.
When a cheque is signed over by the original payee to a third party. Requires both the original payee and the new recipient to endorse.
Example: If John receives a cheque made out to him but wants to give it to Mary, both must endorse it.
A signature or stamp on the back of a cheque that transfers ownership or confirms receipt of payment. Endorsements can be blank, restrictive, or special.
Example: Writing 'For Deposit Only' and signing the back of a cheque creates a restrictive endorsement.
The time between when a cheque is written and when the funds are actually deducted from the drawer's account. During this period, the money appears in both accounts.
Example: If you write a cheque on Monday and it clears on Thursday, the float time is three days.
The time during which a bank restricts access to funds deposited by cheque. The hold allows the bank to verify the cheque will clear.
Example: A bank may place a 2-day hold on a $5,000 cheque deposit from a new customer.
An advanced form of OCR specifically designed to recognize handwritten characters. Uses machine learning to improve accuracy over time.
Example: ICR systems learn to recognize a customer's handwriting style to improve future recognition accuracy.
The line of numbers at the bottom of a cheque printed in Magnetic Ink Character Recognition (MICR) format. It contains the routing number, account number, and cheque number.
Example: The MICR line on a typical US cheque reads like: ⑆123456789⑉123456789012③4567⑇
A field on a cheque where the drawer can write a note about the purpose of the payment. Optional and not legally binding.
Example: Writing 'July Rent' in the memo line helps both parties remember what the payment was for.
The process of printing special characters using magnetic ink that can be read by both machines and humans.
Example: The E-13B font used for MICR encoding contains 14 characters: 0-9 and four special symbols.
A status indicating that an account does not have enough money to cover a cheque. Also called a 'bounced' cheque.
Example: If you write a cheque for $1,000 but only have $800 in your account, it will be returned NSF.
A signed document that promises payment to a specified person or the bearer. Cheques are a common form of negotiable instrument.
Example: Cheques, promissory notes, and bills of exchange are all types of negotiable instruments.
Technology that converts images of text into machine-readable data. Used in cheque processing to read printed and handwritten information.
Example: OCR technology reads the amount written on a cheque and converts it to digital data.
The person or entity to whom a cheque is made payable. The payee is the intended recipient of the funds.
Example: In a cheque written to 'ABC Company', ABC Company is the payee.
A fraud prevention service where a company provides its bank with a list of issued cheques. The bank only clears cheques that match the list.
Example: A corporation uploads a file of issued cheques daily; any cheque not on the list is flagged as an exception.
A cheque written with a future date. The cheque should not be processed until the date written on it.
Example: Writing a cheque dated for next month's rent payment creates a post-dated cheque.
A technology that allows customers to scan cheques and transmit the images to their bank for deposit, eliminating the need to physically visit a branch.
Example: A business owner uses their smartphone to photograph a customer cheque and deposit it through their banking app.
A nine-digit code used in the United States to identify the financial institution responsible for processing a cheque. Also called ABA number.
Example: The routing number 021000021 identifies JP Morgan Chase Bank in New York.
An endorsement that limits what can be done with a cheque, typically by including words like 'For Deposit Only'.
Example: Writing 'For Deposit Only to Account 12345' prevents the cheque from being cashed or transferred to someone else.
A paper reproduction of an original cheque that is suitable for legal purposes and contains an image of the front and back of the original.
Example: Under Check 21, banks can create substitute cheques to facilitate faster clearing.
A cheque that is presented for payment after a significant time has passed since it was written. Banks may refuse to honour cheques older than 6 months.
Example: A cheque written in January presented in September would be considered stale.
An instruction from an account holder to their bank to refuse payment on a specific cheque. Usually requires a fee and must be made before the cheque clears.
Example: You might place a stop payment on a cheque if you discover a dispute with the payee.
MICR, Routing, Account Numbers
Drawer, Payee, Clearing House
Certified, Cashier's, Counter
Positive Pay, Kiting, Washing