Banks settle cheques and credits though the clearing system.Once the values of cheques passed between the banks at the end of a particular day’s clearing have been determined,the resulting debts arising between the banks need to be settled.

For examples, Lloyds may be asking for settlement of $20m worth of cheques drawn on Barclays bank paid in by its customers into their amounts at Lloyds branches.In return ,Barclays may have $25m worth of Lloyds cheques paid into branches of Barclays.