Cashing in on ‘instant’ cheque payment

BY LILLIAN KIARIE

Receiving payment through cheque when in urgent need of cash can be frustrating. Milkah Atieno, a contractor with a private firm in Nairobi, received an emergency call from her son, who had been arrested by police for assault and required a cash bail of Sh15,000 to be released.

Since it was a Friday morning, Milkah knew that failure to pay the lump sum, her son would spend the weekend in remand.

Short of cash, she trotted to pick her payment at a firm where she had provided some services.  To her dismay, the cashier gave her a cheque insisting that it was the only mode of payment the organisation allowed.

If she deposited the cheque in her bank account it would take two working days before it cleared for her to access the cash. That effectively meant she could only get the money the following Tuesday. 

Milkah’s breakthrough came when a friend told her of a place in the city centre where she could exchange the Sh75,000 cheque for cash as long as she paid a small commission.

After a few minutes of stringent checks to ensure that the cheque was genuine, she was given her cash. She also left armed with the knowledge of a banking procedure she was learning about for the first time: Cheque discounting.

The practice, which is used by certain banks and financial institutions, allows a customer to deposit a cheque into his account and subsequently withdraw funds without waiting for the cheque to clear. Interest charges or discounting fees are usually deducted.

In this case, the financial institution is certain that they will get the payment of this cheque on the due date from the customer of the client.

One has to be a credit worthy customer to access the service and the cheques should not be dated later than 90 days from the day of discounting.

To reduce foul play, the bank or enterprise discounting the cheques ensures that the cheques deposited by the customers are drawn on reputable organisations and confirmed with the drawers (and or the drawer’s bank).

Aware of the straining situation, brokers and middlemen have mushroomed in Nairobi, rendering cash discounting services to individuals. Unlike banks, which have high-tech equipment to detect false cheques and follow up in case a cheque bounces, brokers have to be keen while administering this service.

Peter Kinuthia, a cash discounting broker, says he  created and registered a company then applied for brokerage licence from a bank of his choice. The license gives him authority to cash in cheques as a second party in agreement with the bank.

 “As a registered broker, I like working with customers who I am familiar with or who are brought to me by people I trust. I act as a middleman easing this process and I charge a commission in agreement with my client,” he says.

Kinuthia says he has mastered the art of checking the validity of a cheque to ensure it doesn’t bounce. He also checks that the institution issuing the loan does not have past unpaid cheques from the drawer.

FSI Capital, located in the city centre, is also popular among Nairobians seeking the service. For a cheque of less than Sh100,000, the firm charges a commission of 3 per cent, which increases with the sum of the cheque.

Various banks also offer cheque discounting. 

However, this system might be facing extinction following the announcement by Central Bank of Kenya that from August 19 banks will adopt a new clearing system, allowing cheques to be cleared and the money accessed within one day.

This follows the introduction of cheque truncation, an automated system that allows processing based on electronic images.