Truncation

The terms “truncation” and “Check 21” have been debated throughout the global financial community since 2004. Many different interpretations exist but, at its core, truncation is the process by which the physical movement of cheques within a bank, between banks or between banks and the ACH is eliminated (in part or in full) and the cheques are replaced by electronic records of their content, with or without the images. The electronic records are then used in much the same manner as the physical cheques. Check 21 is simply the name given to the US truncation initiative. A bank may truncate any or all of the four areas of cheque processing, namely inclearing or outclearing of cheques and/or returns.