What do clearing activities involve?

Clearing activities refer to the process that takes place after a transaction is authorized and before it is settled. This process involves reconciling and recording the transactions to ensure that the funds are available and that both parties' accounts reflect the correct balance after the transaction.

Settlement is a crucial component of the clearing process, as it involves transferring the funds from the payer's account to the payee's account, ensuring that the transaction is finalized. This ensures that all aspects of the transaction have been processed and accounted for, facilitating smooth financial operations between parties.

In contrast, transaction checks, reversals, and authorizations do not encapsulate the clearing process as completely. Transaction checks may involve validation and fraud detection before completing a transaction, while transaction reversals deal with canceling or voiding a transaction after it has been executed. Transaction authorizations are primarily focused on approving a transaction before it occurs, rather than the post-approval activities that constitute clearing. Thus, focusing on settlement encapsulates the full essence of clearing activities.