Financial advice
Time out
Does your business accept cheques guaranteed with a plastic card? If the answer is yes now's the time to get ready for next summer when the UK's Cheque Guarantee Card Scheme is being withdrawn. Jacqui Tribe reveals
For the past forty years, retailers, have had the option of accepting a cheque with a guarantee (up to a specified limit) if it was accompanied by a customer's card carrying the Shakespeare logo. Although many businesses no longer make use of this functionality when accepting cheques, if yours does, you should be aware that it's being withdrawn from the 30th June 2011.
Guaranteed cheque use has been in rapid decline over the past 20 years and it became clear that it wasn't a question of ‘if' we remove the Scheme but ‘when'. Since peaking in 1990, when more than one billion guaranteed cheques were written, numbers have dropped twelve-fold to just 88 million in 2009 - making up only seven per cent of cheques written.
The Payments Council consulted widely with business and consumer representatives who still use guaranteed cheques, supplemented by market research. The results supported the conclusion that it would be better for all parties if the decline and demise of the guaranteed cheque was co-ordinated centrally.
Finding alternatives to the guaranteed cheque
Some businesses may continue to accept cheques after 30 June 2011 as recent industry-wide changes mean that a cheque offers guaranteed funds after a set timescale: a certainty that wasn't available when the Guarantee Scheme was first introduced. This change was introduced in 2007 and means that at the end of the sixth working day after paying in a cheque, you can be certain that cheque funds are yours and would only ever be reclaimed if you were a knowing party to a fraud.
Debit or credit cards are another potential alternative - 92 per cent of guarantee cards are primarily debit cards. Rather than waiting for a cheque to clear, card transactions, particularly debit cards, provide much faster access to funds. Chip and PIN cards are a very secure way to receive payments, providing built-in protection from fraud. Many businesses already receive card payments online via their websites as considerable time-savings can be made. If you don't already accept cards, your bank or any other that provides acquiring services will be able to provide further information on how to accept card payments.
For retailers, accepting customer payments via debit or credit cards may provide the most suitable alternative to receiving payments by cheque. For some types of payments, however, online solutions may be useful, for example, for payments for goods purchased by phone or via a website. Payments can be made direct to the business bank account via internet banking, or alternatively services such as PayPal offer specialist online facilities that allow customers to pay for goods and services. Where the customer is not physically present, card payments can also be made over the telephone or online, provided the business has arranged a card accepting facility with their bank or a card acquirer. All such online solutions allow businesses to track payments easily and to reconcile payments received to invoices issued.
Electronic transfers may also provide an attractive alternative. The existence of Faster Payments, introduced in 2008, has made it possible to send and receive instantaneous online or phone payments, 24 hours a day and seven days a week, without the need for accepting cards or any unnecessary and often onerous administrative work. Unlike a cheque, you don't have to wait several days to get your money and you can release your goods immediately: whoever is paying you may need to check their bank's value limits for sending Faster Payments though all the main banks and building societies offer up to £1,000.
Cash may also be a sensible alternative for certain payments.
What's the future for cheques generally in the UK?
Whilst the removal of the Cheque Guarantee Card Scheme is inextricably linked to the ongoing and irreversible decline of the cheque, the Payments Council is independently and completely separately reviewing the long-term future of cheques in the UK.
The Payments Council has set a target date of 2018 to close the central cheque clearing, however this date is provisional and will only go ahead if acceptable alternatives are in place and being used by all those who currently rely on cheques. To find out more visit www.paymentscouncil.org.uk.
If you require more information on any of the alternatives mentioned above, please speak to your bank.
Jacqui Tribe is the manager of the UK Domestic Cheque Guarantee Card Scheme.
