While cheques have been around for as long as any of us can remember, its relevance has been steadily diminishing due to e-payment solutions. In fact, many of the younger generation may have never written a cheque (including myself).
For example, 36 million cheques worth $334 billion were cleared in the 1st half of 2013. Today, just a decade later, just 7 million cheques worth $172 billion cleared in the 1st half of 2023. Volume has dropped over 80%, while the value of cheques cleared has nearly halved.
Alongside the diminishing usage, the average cost of processing cheques has been rising. The cost of clearing a cheque today is $0.40. If usage continues to diminish, the cost of clearing a cheque may rise to “between $2.00 and $6.00 by 2025”.
Interestingly though, the average size of each cheque has ballooned 2.5 times from $9,346 in 2013 to $23,043 in 2023. This perhaps tells us that only those who really need to use cheques are still using it, and that smaller users have stopped using cheques already.
Nevertheless, the Monetary Authority of Singapore (MAS) has outlined a roadmap to terminate all cheque usage in Singapore – with corporate cheques to be axed by 2025. Here are 4 things businesses need to know about using corporate cheques.
Read Also: [2023 Edition] 5 Best Business Bank Accounts In Singapore For New Business Owners
#1 Banks Will Start Charging For SGD Cheques Issued By 1 November 2023
Seven “Domestic Systematically Important Banks (D-SIBs)” will start charging for cheques issued by both corporates and individuals by 1 November 2023. The seven banks are Citibank, DBS Bank, HSBC, Maybank, OCBC Singapore, Standard Chartered Bank and UOB.
The other banks in Singapore will do so by 1 July 2024.
On top of this, charges for SGD cheques deposited will also be implemented in phases. The charges will vary among banks.
#2 Banks Will Stop Issuing New Cheque Books To Corporates In 2025
MAS announced an end-2025 timeline to eliminate corporate cheques. Individual cheque users will be able to continue using cheques for a short period after the end-2025 timeline for corporates.
This will be in line with Singapore’s Smart Nation vision where everyone has access to fast, simple, and secure payments.
#3 An Electronic Deferred Payment (EDP) Will Be Built To Smoothen This Transition
One of the use-cases for cheques is its ability for payers to make post-dated payments. For example, they could be for scheduled payments (and also giving the receiving party assurance of payment with cheques in hand).
The Association of Banks in Singapore (ABS) will work with the 7 “Domestic Systematically Important Banks (D-SIBs)” to build an Electronic Deferred Payment (EDP) solution by 2025. This solution will leverage existing payment solutions, such as PayNow and GIRO.
For instances where non-digital payment is preferred, banks will continue to offer physical cashier’s orders even after the elimination of corporate cheques by 2025.
#4 Proposed Transaction Flow For The Electronic Deferred Payment (EDP)
The current proposal is for two types of EDP to be available by 2025: 1) Payment EDP; and 2) Cashier’s Order EDP.
For the Payment EDP, a payer will initiate an “EDP Creation Request” with their bank by indicating either: (i) the payee’s name, bank code and account number; or (ii) the payee’s PayNow proxy, which allows the EDP solution to perform a lookup of that payee’s account details.
The payer will also indicate a date on or after the date on which the EDP Creation Request is initiated (“deferred date”). This deferred date is the date on which the payee can receive payment via the Payment EDP.
Once the payer verifies that the information indicated is accurate and confirms the EDP Creation Request, the payer’s bank will send the EDP information to the payee’s bank. The payee’s bank will then notify the payee that a Payment EDP has been made.
To receive payment, the payee will initiate an “EDP Presentment Request” with their bank on or after the deferred date, which will be sent by the payee’s bank to the payer’s bank. After the payer’s bank has verified the EDP Presentment Request, the payer’s bank will send a confirmation response back to the payee’s bank, debit the payer’s account and notify the payer.
The payer’s bank then initiates payment to the payee’s bank, which will credit the funds to the payee’s bank account and notify the payee once the credit transfer is successful.
The Payment EDP can be cancelled by either the payer or the payee at any time after the initiation of the EDP Creation Request and before the initiation of the EDP Presentment Request.
For the Cashier’s Order EDP, the indicative transaction flow for Cashier’s Order EDP is largely similar to that for a Payment EDP.
The main difference between the two transaction flows is that the payer’s bank immediately debits a payer’s bank account when that payer initiates an “EDP Creation Request” for a Cashier’s Order EDP.
This is akin to how a payer’s bank currently debits a payer’s bank account immediately when that payer purchases a cashier’s order. The indicative transaction flow for a Cashier’s Order EDP is illustrated below.
Most Business Bank Accounts Already Charge For Issuing Cheque Books And A Cheque Clearing Fee
To encourage businesses to use e-payment solutions, banks in Singapore (and likely globally) started have charging a fee for businesses to get a cheque book as well as impose a cheque clearing fee.
For example, the OCBC Business Growth Account charges $25 per cheque book. On top of this, there is a cheque clearing fee of $0.75. This means the total cost of simply issuing a cheque is $1.25. Payee’s also have to fork out a cheque deposit charge of $0.75 per cheque.
If you have insufficient funds in your account by the time the money needs to be withdrawn, your cheque will bounce. For SGD cheques, you have to pay $50 per returned cheque due to insufficient funds, and $40 per returned cheque due to technical reasons.
You may also incur an incidental overdraft charges for excess amounts. In a situation you issue a cheque for $10,000, but only have $7,500 in your account, you will incur overdraft charges on the excess amount (i.e. $2,500 in this example). OCBC’s overdraft charges are min $30 or Prime + 4.75% per annum (whichever is higher) on excess amount.
When handling cheques, there are a range of other fees and charges that you may not typically encounter if you are dealing with e-payments. Some of these include:
- To stop payment: $15 to $30, depending on whether you utilise offline or online/phone banking methods to make the stop
- Loss of cheque book: $30 to $60, depending on method of reporting
- Foreign currency cheques: min $30 to max $100, depending on amount
- Cheque image retrieval: $21.60 to $54.00 in 2023, and $21.80 to $54.50 in 2024, depending on when cheques were cleared
Read Also: What Is PayNow For Business And 4 Reasons Why Businesses Should Adopt It
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