Check Clearing Process Revealed

A check that has been issued goes through a process of clearing to facilitate the transfer of funds. The payee which could be a specific person, a store, a utilities company or any other company that needs to be paid, deposits the check in their account. The designated clearing system will run the check through its sorting machine to read the magnetic ink character recognition or MICR to capture the routing number of the issuer’s bank, the account number, check number and amount of the check.

The MICR is primarily used for crediting and debiting accounts, thus the payee’s account is credited while the issuer’s account is debited. The short period of time in between where both the payee’s bank and the issuer’s bank have the same funds available to them is called “float”.