Why it takes four days to clear a cheque

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

07 January 2007

John Koech is concerned that it takes too long to get a cheque cleared in the Kenyan banking system. His bank says it will take four days yet he has noted that it actually takes five to seven days to get the money.

This seems like a problem of how to count the days. If a process that takes one day to complete is started today, when will it be finished? Today or Tomorrow? Tomorrow, of course. It follows therefore that if the job takes two days, then it will be completed the day after tomorrow; right? Yes.

Many people make the mistake of counting Monday as the first day and thus expect the cheque to be cleared on Thursday. The confusion arises because of mixing up the concepts of "time" and "duration". When the bank says "come after four days", they are talking about duration. That is, one day will end tomorrow and so on.

If, on the other hand, you are told "come back on the day four", this would referring to "time" and you would be right to count Monday as day one. In this case, day four would be Thursday.

Now, in Kenya, cheques take a duration four working days to clear. If you bank it on a Monday, the money will be available on Friday. The days are counted as follows: Tuesday is the first day, Wednesday the second, ... and Friday the fourth day.

If, the cheque was deposited on a Tuesday, then it clears on the Monday the following week because weekends (and public holidays) are not counted. Now this gives us a simple formula for finding out when a cheque will clear: If it is banked on day X, then the money will be available on day X-minus-1 of the following week.

For example, if you bank the cheque on Thursday, it will clear on Wednesday (Thursday minus one day) of the following week. Obviously, the formula only works for all weekdays, except Monday. This explains the five to seven days that Koech talks about. But the question that still remains is: why does it take four days to clear the cheque?

Well, there is only one clearing house in Kenya and it is located in Nairobi. All cheques from all bank branches countrywide are cleared there. When I give you a cheque, you deposit at your bank on day zero. On day one (the following day), your bank goes to the clearing house and presents the cheque to my bank.

On day two, my bank checks my account to confirm that the funds are available and to verify the signature. On day three, my bank confirms to you bank that the cheque is genuine and hands over the money.

On day four, your bank deposits the money to your account and you can now withdraw it. This process remains the same even if you banked the cheque in a different town (so-called "upcountry cheques"). They all take the same time...well, all except two or three towns classified as "remote areas".