Call for cheque change for small firms

The Forum of Private Business (FPB) sees no reason why Lloyds TSB can't widen their plans to allow instant interest on cheques paid into personal accounts to include the accounts of small business.

The small business group, FPB, is pushing for banks to embrace quicker clearing times and dispel the myth that cheques need three days to process.

The FPB's Head of Research Andrew Mowlah said: "At present our cheque clearing is years behind the rest of Europe, smaller firms working with smaller margins are being choked by banks reluctant to update their systems."

The initiative is the first of its kind by any UK bank and means that all Lloyds TSB personal current account customers will receive immediate interest on cheques up to £1,000, instant access to the cash and customers who have an overdraft will be able to reduce the amount of interest they are paying, as soon as they pay in a cheque.

Waiting game

Mr Mowlah believes banks are still avoiding the issue. He said: "If Lloyds TSB has recognised their personal account holders are frustrated by the slow system of cheque clearing why have they ignored the same issue as regards small businesses?"

The FPB believes:

• There should be an updated, uniform system to increase banking confidence to bring the UK up to speed with the rest of the European Union. Overview The present cheque clearing system is totally outdated, years behind the rest of Europe, deeply onerous and profoundly damaging to smaller firms.
  
• Good financial management is highly important to the smaller business. The fact that British businesses have to wait up to five days for a cheque to clear puts them at a competitive disadvantage to businesses in other European countries.

British banks are bottom of the European league when it comes to processing consumer payments. In Belgium, Denmark, Greece, Spain, Finland and the Netherlands, electronic payments are cleared on the same day. In Sweden, the clearance process can take just a couple of hours, with payments made in the morning appearing in customers' bank accounts that afternoon.

The FPB is concerned that the present system in the UK creates confusion and suspicion. There are differences in the ways that consumer and business transactions are processed, while the physical system is antiquated. Furthermore, when payments are made, the money goes out of one account, but does not immediately appear in the supplier's account, posing the question as to where the money goes to. The FPB believes that, with the technology available today, having to wait days for payments to process is simply unacceptable.

The banking industry has now agreed that by next year transfers of money which are triggered by instructions over the phone or internet will take place on the same day.