Glossary

Automated Clearing House/ Clearing Systems

Is a type of Payment Systems which allow executing Direct Debit and Direct Credit Transfers. Clearing Systems are of cooperative nature and include a number of Financial Institutions which exchange Orders therein.

How do Clearing Systems work?

 

They start to function when Originator instructs Originating Institution through the mobile phone, online or telephone banking to transmit the funds to the Beneficiary. In the Settlement Order, Originator provides information of the Sort Code, Account Number, the name of the Beneficiary, amount of the Transfer, along with any reference details Originator wishes to add. Whilst processing the Transfer, Originating Institution will check whether Originator has sufficient funds on the account to settle the Transaction. Once the Originating Institution processes the Order, it is for Receiving Institution to check that the account number is valid. Then the Receiving Institution sends back a message through Clearing System whether it accepted or rejected the payment. Subsequently, the Clearing System credits the Receiving Institution with the funds and sends a message to the Originating Institution that the order has been Settled. Both Originating and Receiving Institutions mark the Order as complete and confirm the execution to Originator and Beneficiary.

Other articles