Understanding Clearing – What do we know about clearing? Although we often transact through banks, we may not yet understand one of the widely used transfer methods, namely clearing. Be it in the field of banking or finance, clearing has an important role. Therefore, learning the meaning of clearing from the basics is quite important.
In this type of transaction, the clearinghouse protects both parties by ensuring that the funds are verified and everything else goes according to plan. If a dispute arises, the clearing board intervenes to act as a mediator before sending it to arbitration. The clearing process also plays an important role by recording transaction details for future reference.
Definition of Clearing
The concept of clearing describes the financial transaction settlement process that must be passed through. Although paying for goods with a paper check is becoming less common, this can be one of the easiest examples of clearing to understand. So, when the buyer pays the seller with a check, the seller deposits this check into his bank account. It then takes several days for the check to “clear” and the funds to appear in the account.
According to Bank Indonesia Regulation No.7/18/PBI/2005 dated July 22, 2005, the meaning of clearing is the exchange of paper or electronic financial data between banks, both on behalf of the bank and the customer whose calculation results are settled at a certain time.
On the other hand, KBBI mentions that clearing or the meaning of clearing is a form of settlement of bookkeeping and also inter-bank payments that are done by transferring the balance of one party to another entitled party.
To make it easier to understand, the conclusion is that this understanding of clearing can be known as a transfer process that is slightly different from the normal transfer process through an ATM machine. This is due to the clearing transfer process which takes quite a long time, which is around 2 to 3 days.
More specifically, clearing is often used in trading. When buyers buy securities, options, or futures, the clearing process can validate the transaction. The clearinghouse will ensure that there are sufficient funds to complete the purchase, and the transfer is recorded before the funds are sent to the buyer’s account.
The definition of clearing is a procedure with various steps that are useful for completing financial trades while ensuring that market orders remain balanced.
What is a Clearing Board?
Since the beginning of the discussion, Reader has often heard the term clearing house. Actually, what is it?
While banks handle the clearing process for direct transfers, independent clearing houses play an important role in trading. The clearinghouse functions as an independent third party to verify investment or trade transactions. If there is a discrepancy, the clearing board gives both parties the opportunity to resolve the issue independently.
In return for this service, the clearing house charges a fee that is usually included in the commission paid to any investment broker. In Indonesia, there are clearing agencies such as PT Kliring Berjangka Indonesia. In England, the London Clearing House is one of the most important names in trading. Multinational investment banks such as JP Morgan and Deutsche Bank also act as clearing houses for traders.
What Are the Benefits of Clearing?
After understanding the meaning of clearing and its institution, it’s time to dive into the benefits of this one transaction. Anything? Let’s watch together!
- Transferring funds through the service system is easier, in accordance with the needs of the community.
- The effectiveness and efficiency of the national payment system increased. This will make it easier for both parties (customers or other parties) involved.
- Through personal and company accounts, customers can send money or other transactions in large amounts due to the availability of extensive upgrade services.
For information, the same process applies to every financial transaction that occurs between two or more banks or other institutions. Whether a paper check or an electronic transfer, these transactions must be reconciled through the clearing process. An independent clearing board facilitates this process, ensuring a more secure system.
Compared to other transfer methods, the clearing method makes the process of transferring an amount of money much longer in general, which is around 2 or 3 days. What is the reason? This is because the bank will ensure the availability of the balance in the sender’s account first.
Not only 2 or 3 days, this duration also only applies to working days, namely Monday to Friday. Even so, it is possible that remittances will take longer if done on Friday. Because, activities will be cut off on holidays and the new bank will check on Monday of the following week.
For example, if Reader will transfer a large amount of money using clearing on Monday, the money will at least be received by the recipient on Wednesday or Thursday. However, if Reader transfers on Friday, the money may not arrive until Tuesday or Wednesday at the latest.
So, it can be understood, isn’t it, that although it can be used to send money, but this clearing method is not appropriate to use when we are in a hurry or quick payment. For example, to pay online shopping , bills, etc.
If we use clearing to send large amounts of money and don’t need to send it too quickly, this method can be very useful. Because, there are various advantages that make many customers choose this option, such as very cheap transfer fees. Generally, the clearing option allows our funds to be cut by only Rp.5 thousand to Rp.15 thousand.
Types of Clearing
As one of the transfer methods, clearing apparently also still has its own types, Reader. In general, there are three types of clearing. Here is the review:
1. General Clearing
This type is generally used in the calculation of banking papers. As for the implementation process and system arrangements are directly supervised by Bank Indonesia as the authority.
2. Local Clearing
For local clearing, the paper calculation is done interbank. It’s just that the provisions that apply are regulated by the district, as has been established since before.
3. Inter-Branch Clearing
Local clearing is one of the means of calculating securities debts or money transfers that are used specifically for banks that are within the coverage of a certain area. The way of implementation, ie all calculations from branch bank offices will be collected.
1. Bank Indonesia National Clearing System (SKNBI)
The clearing method system is divided into two, if seen from the system within Bank Indonesia. Here is the explanation:
If Reader needs a debit transfer, this clearing system can be used. The reason is that the debit system comes from the debit card owned by the participant registered in the region concerned. Generally, this clearing is in the form of a giro bill from between regions.
For clearing with this system, there are some special provisions, namely:
- Applies to customers who are in the clearing area and is intended for other customers throughout Indonesia.
- The transfer process must be in rupiah currency and use Electronic Financial Data (DKE).
- The National Clearing Organizer (PKN) will perform the LLG calculation process.
System Available in Clearing Papers
In addition to the two national clearing systems above, there is also a system found in the clearing paper. Let’s discuss together!
a. Manual System
A local clearing maintenance system that performs the clearing process manually by each participant, starting from creating a clearing balance billet to selecting the paper.
b. Semi Automation System
This system enforces the calculation and compilation of clearing balance bills manually by each participant.
c. Automation System
Still a system that organizes local clearing, the implementation of this automation system performs the calculation of clearing balances and paper sorting.
d. Electronic Clearing System
This is a clearing maintenance system in the calculation and making of the clearing balance billet. This electronic clearing system will be enforced entirely electronically and accompanied by the way of delivery of the participant’s ticket on the part of the organizer.
Then, the paper is selected automatically. As for in this system, all the calculation results will be adjusted to the results electronically, Reader.
Manual Clearing Mechanism
In performing the manual clearing mechanism, there are at least two stages that each participant must go through. First, that is handover clearing and second, that is return clearing.
In this case, each participant is obliged to do both networks until the organizer declares that the clearing is complete by sending a representative of the participant. Meanwhile, this is the explanation of the clearing of submission and return.
1. Clearing Submissions
In this first mechanism, there are various activities carried out in the participant’s office or venue. Each participant will be given a letter in the form of an outgoing debit letter and an outgoing credit letter.
Outgoing debit cards are cards that bank customers deposit for profits from the customer’s own account, while outgoing credit cards are cards in which the burden of profits and interests of other customers will be channeled to the depositing customer’s account.
2. Return Clearing
This one clearing mechanism involves clearing slips in the form of incoming debit slips and outgoing debit slips. These two papers are accepted by the participants. As for the incoming debit card, it is a card collected by the participant at the expense of the bank customer who receives this card.
Meanwhile, the incoming credit letter is the opposite, that is, the letter is handed over to other participants for the benefit and interest of the bank customer who receives the letter.
In this article, we involve a lot of paper. However, before that, does Reader know what kind of paper is included as non-cash payment material? This paper can be in the form of a document, the list is as follows:
- Debit Note
- Credit Notes
- Proof of Receipt of Bank Transfer (SBPT)
- Bank Draft For Transfer (WBUT)
- Giro ticket
- Other documents that have been approved by Bank Indonesia.
As an example of how clearing works, imagine a trader wants to buy a futures contract. To maintain the sale, there is an initial margin that is required and must be held as a guarantee that the sale will be successful. The clearinghouse will verify this by logging into the merchant’s account and holding the required margin so that it cannot be used until the transaction is completed.
This will reduce the risk of funds being used for other transactions, as well as ensure that all parties honor their agreements.
Example of Accounting Journal Entry
This time, we will discuss an example related to clearing and an example of an accounting journal entry. Check out the example below!
Stated a transaction that has just been completed with the clearing method. In the clearing, Bank X and Bank Y are involved and become participants for the same city, namely Jakarta.
Here is the transaction:
On April 20, 2021, a customer at Bank X, Ibu Yanti, successfully withdrew a check amounting to Rp30 million. Then, plus a check of Rp.25 million to be paid to Mr. Anto, a Bank Y customer.
On the same date, Bank Y received a giro bill from Ibu Mira, a giro customer to get her profit from Pak Andi, a giro customer from Bank X amounting to Rp20 million. It’s just that, if the transaction is completed using the clearing method, journal entries will be required for each clearing participant.
Therefore, here is the transaction journal entry at Bank Y:
- Transaction 1
Recorded the first clearing:
Dr. RAR Clearing (Rp 30,000,000 + Rp 25,000,000)
Dr. RAR Clearing Rp 55,000,000
Recorded the second clearing:
Cr. RAR Clearing Rp 55,000,000
Dr. BI Giro Rp 55,000,000
Cr. Giro Anto Rp 55,000,000
- Transaction 2
Recorded the first clearing:
Dr. Giro Mira Rp 20,000,000
Cr. BI Giro Rp 20,000,000
Transaction journal recording at Bank X
- Transaction 1
Recorded the second clearing
Dr. Giro Yanti Rp 55,000,000
Cr. BI Giro Rp 55,000,000
- Transaction 2
Dr. Giro Andi Rp 20,000,000
Cr. BI Giro Rp 20,000,000
The difference between Clearing and RTGS
Reader, of course we now understand the clearing method for transactions, right? Even so, we should also know the difference between clearing and RTGS. But before that, what is RTGS?
RTGS alias Real Time Gross Settlement is an electronic fund transfer system. As for the solution of this method is every time during the working day. In addition, clearing actually only completes the transfer process at certain times, namely 10 am, 12 noon, 2 noon, and 4 pm.
In terms of overall aspects, the difference between clearing and RTGS is not much. It’s just that the transfer completion time and administration fees are different.
How, Reader? Are you among the people who have known the clearing method and want to understand this more deeply, or do you not know at all? Apparently, this clearing method has its own weaknesses and advantages. Although quite time-consuming, the administrative costs are not large.
In addition, this type is also further divided into several types with specific systems and mechanisms. We also know about the clearing agency that is authorized to supervise this process independently. Fortunately, we can cover all of them in this one article.