Check Clearing

Bank of First Deposit (BOFD) or Depository Bank - The bank at which a check is deposited. If the check is at the [recipient bank], then the rest of the process is foregone.

Provisional Credit - money that shows as pending or available. (Not always guaranteed)

Paying Bank - Bank on which the check is drawn, stated on the check.

1. Check deposited
   1. Through ATM, mobile app, in person, or mail
   2. May give provisional credit, according to bank policies.
2. Check sent for collection
   1. Almost always electronically
   2. Check is scanned
      1. Electronic Check Image and data file (According to Check Clearing in the 21st Century act A.K.A. Check 21 standards)
   3. May be sent directly to the paying bank if relationship exists, or intermediary/clearinghouse which may be Federal Reserve or private.
3. Paying Bank reviews the check
   1. Runs multiple automated checks, may be reviewed by a human if the MICR number is unreadable, if it looks like it could be edited, or if it is an unusually large amount it could take longer, several days instead of hours, as a human reviews.
4. Settlement between banks
   1. If the paying bank decides to pay
      1. Funds are settled between banks, typically through Federal Reserve or clearing systems, often same or next-day basis.
      2. Provisional credit is approved, becomes final.
5. (Extra) Holds and Availability
   1. They may place a hold on part or all of the amount if it looks suspicious, is a new account, or is simply large.
   2. If it bounces, the provisional credit is reversed, may be charged a fee, and could leave you with a negative balance.
6. (Extra) Upon Return
   1. If it is not honored, the bank returns the check with a code like (Non-Sufficient Funds)
   2. Both drawer and payee may be charged
7. Time frames
   1. Same day, 1-2 business days, or around a week for risk management.