What are Clearinghouse Funds?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 September 2019
  • Copyright Protected:
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
In 1961, the Kennedy family was given a puppy named Pushinka; her mother was one of the first Soviet space dogs.  more...

October 17 ,  1777 :  The British surrendered to US military forces in the Battle of Saratoga.  more...

Clearinghouse funds are resources that pass through banks in the Federal Reserve System. The instrument of transmission is normally a personal check from an individual client or a business check from a company that is either a direct client of the clearinghouse or is a clearing member. The main function of clearinghouse funds is to verify receipt of the funds in a manner that is documented from the point of reception all the way through clearing the funds for use.

The formula for processing clearinghouse funds is relatively straightforward. All transactions pass through what is called a central processing mechanism. The mechanism includes components that help to log the receipt of the check, make a tentative application to the account balance for the customer, and then hold the funds in abeyance until the check clears the issuing bank. Once the check has cleared, the clearinghouse will post the funds to the customer account and can use the balance to honor orders from the client.

The overall process of processing the clearinghouse funds will vary, based on the number of banks involved and the speed of verification associated with the check. When the clearinghouse and the client both use the same banking institution, clearinghouse funds may be available for use within one business day. However, if more than one bank is involved, the entire process may take anywhere from two to five business days.


Depending on the relationship between the client and the clearinghouse, orders may be executed without waiting for the clearinghouse funds to be posted. This may be the case if the procedures of the clearinghouse allow the extension of short term credit to clients who meet certain financial criteria. Extending credit is a privilege that is subject to review from time to time, and may be revoked in the event that a check from the client does not clear due to insufficient funds.


You might also Like


Discuss this Article

Post your comments

Post Anonymously


forgot password?