Once a check has been issued, it is required that it be presented to a bank for payment. Once presented, the check requires verification to ascertain it’s not fraudulent. It is not necessarily that the check is presented to the drawing bank hence the paying bank requires a mode to reach out to the drawing bank creating the requirement for using the truncation system.
When using this system, checks are presented to the bank for payment physically. This is then transmitted to the clearing bank electronically. This may entail scanning the check and then transmitting the image through a set model. This means that various banking institutionw and other check clearing houses are require to be connected to ease the transmission.
Check truncation systems ensure that the period taken to clear the checks is reduced significantly. In some commercial banks the process may take as little as one day for payment to be made against the check after it has been presented. This has also seen introduction of newer generation checks which are easily truncated. The systems offers banks a chance to serve their customers better by reduction in time of clearing the checks as well as reduced overhead cost that would otherwise accrue in physical clearance of the same.
Clearing truncated checks may take two different forms. Outward clearing is the model through which the check deposited is scanned by the operator and information regarding amounts, account verification and bundling is done at the branch level. These are then sent to the service branch. Inward clearing system entries, account information and verification takes place at the service branch. These are then sent to the clearance house for payment to be effected.
Bank check truncation systems vary between banks. Each bank has its own unique system that it follows. There are software programs which are available from various companies and which are available for use in truncation. This process also incorporates a platform through which the bank is able to pursue their clients account history and creditworthiness.