Cheque truncation is a form of cheque clearing system. It digitises a physical paper cheque into a substitute electronic form. This is done for transmitting the amount of money mentioned on the cheque to the paying bank. This is also referred to as ‘Local Cheque Clearing’.
In this process, an electronic image of a cheque is sent by the clearing house to the paying branch. This image contains all relevant information like date of presentation of the cheque, presenting bank, data on the MICR [Magnetic Ink Character recognition], etc. By this process, the paying branch gets these details automatically.
This is a much simpler and a faster process of clearing a cheque than physically transferring a cheque from one bank to another. Since cheque truncation speeds up the process of collecting cheques it results in better service to customers and reduces the scope of loss of cheques in physical transit. This process is faster and more secure.