Cheque Guarantee Card Scheme closes on 30th June 2011
December 1st 2010

Does your business accept cheques guaranteed with a plastic card? If the answer is yes now's the time to get ready for next summer

For the past forty years, businesses, have had the option of accepting a cheque with a guarantee (up to a specified limit) if it was accompanied by a customer's card carrying the Shakespeare logo.Although many businesses no longer make use of this functionality when accepting cheques, if yours does, you should be aware that it's being withdrawn from the 30th June 2011. You may want to know what alternatives exist and why the decision was taken - even though after this date you can still accept cheques – just not guaranteed with a card.

Why was this decision taken?

Guaranteed cheque use has been in rapid decline over the past 20 years. Since peaking in 1990, when over 1 billion guaranteed cheques were written, numbers have dropped twelve-fold to just 88 million in 2009 – making up only 7% of cheques written.

Interestingly, banks also report that a large percentage of guaranteed cheques are actually written in situations where the guarantee can't be applied: for instance where the customer has posted the cheque rather than presenting it in person – a Scheme requirement.

In light of their falling usage, the Payments Council - which sets strategy for payments in the UK – reviewed whether it would be in customers'best interests to manage the demise or let it wither on the vine, allowing individual banks to withdraw the scheme separately on their own timescales. Before taking a decision the Payments Council consulted widely with business and consumer representatives who still use guaranteed cheques, supplemented by market research.The results supported the conclusion that it would be better for all parties if the decline and demise of the guaranteed cheque was co-ordinated centrally.

How our use of payments has changed

When the Cheque Guarantee Card Scheme was introduced back in 1969 the payments landscape was very different. Credit cards and automated payments were in their infancy and debit cards didn't exist, so businesses would have relied on cheques and cash for their payments.

Over the past twenty years, cheque volumes have fallen rapidly: most recently, cheque acceptance has all but disappeared on the high street as the vast majority of retailers decided to stop accepting them. Alongside this trend, the average value of a cheque written by a consumer has risen and now stands at £268 – £268 - above the maximum value Scheme limit of £250; and only 88% of cards guarantee transactions up to £100. In addition, even before a decision was taken to withdraw the Scheme.

All these factors contributed to the decision to withdraw the Scheme from 30th June 2011.

Finding alternatives to the guaranteed cheque

Cleaners have been identified in our research as recipients of guaranteed cheques, possibly reflecting the fact that nearly half of all guaranteed cheques are used to pay organisations and businesses other than retailers.Depending on your circumstances you might want to consider the following:

Cheques can still be acepted after 30th June as recent industry-wide changes mean that a cheque now offers guaranteed funds after a set timescale: a certainty that wasn't available when the Guarantee Scheme was first introduced.At the end of the sixth working day after paying in a cheque, you can be certain that cheque funds are yours and would only ever be reclaimed if you were a knowing party to a fraud. This was one of a number of changes to cheque clearing timescales, known as 2- 4-6.Please visit www.chequechecker.co.uk for more information.

As cheques are pieces of paper and more vulnerable to fraud than other more modern payment methods, the advice has always been to be extra wary of accepting any kind of cheque or bankers draft from an unknown source.However, cleaners accepting cheques may sometimes have an advantage over some other organisations because the cheque writer may be a familiar party.

Debit or credit cards are another potential alternative – 92% of guarantee cards are primarily debit cards. Rather than waiting for a cheque to clear, card transactions, particularly debit cards, provide much faster access to funds. Chip and PIN cards are a very secure way to receive payments, providing built-in protection from fraud.

Many businesses also receive card payments online via their websites as considerable timesavings can be made. If you don't already accept cards, your bank or any other that provides acquiring services can provide further information.

For some businesses an online solution may provide a useful alternative to receiving payments by cheque. Payments can be made direct to the business bank account via internet banking, or alternatively services such as PayPal offer specialist online facilities that allow customers to pay for goods and services.All such online solutions allow businesses to track payments easily and to reconcile payments received to invoices issued.

Electronic transfers may also provide an attractive alternative.The existence of Faster Payments, introduced in 2008, has made it possible to send and receive instantaneous online or phone payments, 24 hours a day and seven days a week.

Cash may also be a sensible alternative for certain payments.

What's the future for cheques generally in the UK?

Independent of the removal of the Cheque Guarantee Card Scheme, the Payments Council has set a target date of 2018 to close the central cheque clearing, however this date is provisional and will only go ahead if acceptable alternatives are in place and being used by all those who currently rely on cheques.