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Malaysian Banking Law – Meaning of “Collecting a Cheque”
“Collecting a cheque” means the bank receives and processes a cheque on behalf of the customer in order to obtain payment from the bank that issued the cheque.
In this situation, the bank acts as the customer’s agent to collect the money represented by the cheque.


Simple Explanation
There are usually two banks involved:
  1. Paying bank
    • the bank of the person who issued the cheque.
  2. Collecting bank
    • the bank of the person receiving the cheque.
The collecting bank sends the cheque to the paying bank to obtain payment.


Example
Ali gives Ahmad a cheque for RM5,000.
  • Ali’s account is with Malayan Banking Berhad.
  • Ahmad’s account is with CIMB Bank Berhad.
Ahmad deposits the cheque into his CIMB account.
In this situation:
  • CIMB acts as the collecting bank;
  • Maybank acts as the paying bank.
CIMB sends the cheque for clearance and collection from Maybank. Once payment is received, the money is credited into Ahmad’s account.
This process is called “collection of cheque”.


Difference Between Honouring and Collecting a Cheque
Honouring a Cheque
  • done by the paying bank;
  • means paying the cheque.
Example:
  • Maybank pays RM5,000 from Ali’s account.


Collecting a Cheque
  • done by the collecting bank;
  • means processing the cheque for the customer to obtain payment.
Example:
  • CIMB processes Ahmad’s deposited cheque and collects payment from Maybank.


Legal Relationship
When collecting a cheque, the bank acts as:
  • agent of the customer.
This creates an agency and principal relationship because the customer authorises the bank to collect the cheque proceeds on his behalf.


Duties of the Collecting Bank
The collecting bank must:
  • act with reasonable care;
  • process the cheque properly;
  • collect payment according to instructions; and
  • avoid negligence.
If the bank negligently collects a forged cheque or acts carelessly, it may become liable to the true owner of the cheque.


Banking Law Position
Thus:
  • honouring cheque → paying the cheque;
  • collecting cheque → obtaining payment for customer from another bank.
Both functions involve agency principles in banking law, but they occur at different stages of the cheque transaction process.

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