What Are Uncollected Funds?
Uncollected funds are deposited cheques or payments that are still in the process of clearing by the bank. The bank needs to verify these transactions before releasing funds to the depositor. The receiver is unable to collect the funds until the transaction is verified by the bank.
How Uncollected Funds Work?
- Cheque Deposit: A customer puts a cheque in their account in a bank.
- Bank Verification: The receiving bank verifies the payer's cheque. These funds are uncollected funds until the verification is complete.
- Availability of Funds: The money deposited becomes available in the account upon clearance.
- Uncollected Fees: If a cheque bounces due to uncollected funds, a uncollected fees is charges.
Benefits Of Uncollected Funds
- Fraud Prevention: Banks verify if the cheques are valid before disbursing funds.
- Regulated Process: Safeguards secure transactions and minimises bounced cheques.
- Bank Liquidity Management: Enablers of efficient cash flow management by banks.
- Reduces Overdraft Risk: Does not enable the customer to spend uncollected funds.
Key Takeaways
Uncollected funds are held-back deposit cheques for bank verification and therefore kept reserved for certain period of time. The procedure involves cheque deposit, verification, clearing, and releasing of funds, which is done within certain days. This process prevents fraud, protects bank liquidity, and allows safe transactions.
