What Happens to a Check After You Cash It?

A person pays for a product or service by writing a check to the company for the amount due. The company accepts the check and the customer is done with payment. Next, the company must convert this piece of paper into currency. This is done by putting this check into a deposit and taking the deposit to its bank and depositing it into its account. Now the bank has the original check and must convert this into currency. This process, called check clearing, may take a few days. For this reason, the bank may place a hold on its customer's account until the check clears the original bank. The customer's account reflects the deposit in the balance, but the available balance doesn't reflect the amount of this check.

Clearinghouse

The bank begins the process of clearing the check by taking a picture of the check, front and back, and converting the live check into an electronic file. The bank that accepted the deposit then sends the electronic file to another bank, called the clearinghouse, where all checks are centrally processed. The clearinghouse accepts the electronic file and deciphers the information from it to determine against which bank the check is actually drawn. The clearinghouse does this by using the routing numbers and other information on the check. The clearinghouse then sends the electronic file to the bank against which the original check is drawn so that bank can cash the check. This process is commonly referred to as clearing the check.

Clearing the Check

The bank the check is drawn on receives the electronic file and matches the numbers to the account numbers it has on file for the customer. Next, the bank checks the amount of the check against the customer's bank balance to make sure there's enough money in the bank account to cover the check. If there are sufficient funds, the check is cleared by reducing the balance in the customer's account by the amount of the check. If there is not enough money in the account, the check is not cleared. Instead, the bank deducts a return check charge (commonly called a bounce charge) from the customer's account and the check is returned to the clearinghouse--which subsequently returns it to the bank that submitted it so the bank can return the check to the customer.