A bank clearinghouse functions as an intermediary between financial institutions. For example, Bank A has a multitude of debits written on the accounts of Bank B and vice versa. Rather than sending each transaction separately, both Bank A and B will use an interbank clearinghouse to bundle these transactions to make the system more efficient. The use of a banking clearinghouse exists in most every city with more than two banks.

If a business can understand how a clearinghouse in banking works, it can make business banking more transparent. In the previous banking system where paper transactions were dominant, it was much easier for a banking clearinghouse error to occur. Since the advent and rise in popularity of electronic banking, these transactions became much more efficient with the use of automated clearinghouses. In order to understand the workings and uses of banking clearinghouses you should consider the following:

1. Define the banking clearinghouse process.

2. Understand the advantages and disadvantages of an international payment system.

3. Utilize the clearing services for banks in the US and international bank clearinghouses.

Action Steps
The best contacts and resources to help you get it done

Analyze the functions of banking clearing services

Most people understand how surface transactions at their bank work. However, what happens between the time you deposit the money, write and cash the checks, or complete those electronic payments is often a mystery. This is where banking clearing services come into play.

I recommend: NACHA is a not-for-profit association that oversees the Automated Clearing House (ACH) Network, one of the largest electronic payment networks in the world. Analyze this chart from The Clearing House Interbank Payments System (CHIPS) that details how interbank clearinghouses operate.

Investigate the possibility of using international bank clearinghouses

Making the decision to bank or even expand your company overseas can be difficult. There may be opportunities in international markets but one must navigate the international payments made through the foreign banking system.

I recommend: Check out the International Payments Framework Association to understand the international payments system. The Clearing House Service is a payment and collection system that allows business partners to trade internationally with each other but settle in either a chosen or local currency, through the local banking system where possible.

Use the clearing services for banks in the US and abroad

Even though the US banking system is more transparent than its European counterpart, they both still have systems that are complex enough that you may need to utilize clearing services to help these transactions.

I recommend: Contact Raiffeisen Landesbank about its Euro clearing services if you are thinking of banking in Europe. Evaluate the US clearing services offered by Citibank.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Before using any banking clearing services, it is prudent to contact the Better Business Bureau and other banking and business regulatory agencies to verify their credentials.