A Cheque is a document that orders a bank to pay a specific amount of money from a person’s account to the person in whose name the cheque has been issued. The person writing the cheque, the drawer, has a transaction banking account (often called a current, cheque, chequing or checking account) where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.
Cheques are a type of bill of exchange and were developed as a way to make payments without the need to carry large amounts of money. While paper money evolved from promissory notes, another form of negotiable instrument, similar to cheques in that they were originally a written order to pay the given amount to whomever had it in their possession (the “bearer”).
Technically, a cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer’s name with that institution. Both the drawer and payee may be natural persons or legal entities.
Currently, amounts written on cheques are limited to a maximum value of UGX 20 Million per transaction for physical exchange of instruments by commercial banks in the clearing house. The clearing house clears and settles cheque transactions on a daily basis.
Effective 1st July 2009, BoU and commercial banks implemented a local clearing of items denominated in foreign currency. Consequently, local clearing of cheques and EFTs were also capped to the equivalent of UGX 20 Million.
At present there are 23 financial institutions participating in the Bank of Uganda Clearing House with an average clearing cycle of three working days.