Despite many payment options available, checks remain prevalent. Cash may be king, but when it comes to large sums, who carries that much?
There are good reasons people spend billions worth in check every year:
Not anybody can cash out a check. Only the person mentioned by the sender can ask for a deposit. Although it’s possible, it’s too much work for the scammer. By the time they edit the check, the other will have already cashed it.
Checks are easier to store safely. Even if you lose it, you can ask your sender to cancel it and send a new one. But if you lose cash, it’s lost forever.
You wouldn’t be able to do that if checks weren’t traceable. The sender has control of his money since he hands out the check until your request processes. If he sends an amount by mistake or anything wrong happens, they can cancel it.
Your bank sends you a copy of every check you create to keep on track of your expenses. Because each one has a unique ID, payees can only use it once.
- Processing time
If you receive the check and as your bank for the payment, it may take one to two days to complete. This time also allows us to cancel at the last minute if they think it was a mistake.
Although most would prefer to cash instantly, this delay proves very useful. Imagine you’re due on your payment today, but you don’t have the funds until tomorrow. You can send a valid check without having the money, although it’s unrecommended.
If you get the funds by the time they process, nobody will notice you didn’t have them first.
- No account needed
Some locations will read your check, verify your identity, and convert it into cash. Unlike the sender, payees don’t require any information other than the personal ID. Thus, clients can send money from any bank without having to open new accounts every time.
Now, when does it make sense to use checks?
- To avoid fees
Electronic payments are often fast and cost-effective. But most 3rd parties will charge a percentage, increasing your fees as you send larger amounts.
Issuing a paper check costs anywhere from $1 to $20, depending on where you get it. The advantage is, you will only be paying to print and mail the check, which will surely cost under $20. That can save a lot in fees from an $8000 payment, for example.
- Better than gift cards
You want to send money to a friend without, but money orders don’t sound very safe. You could send a gift card. If so, they can only buy from the store it belongs to (not ideal). Plus, you risk the gift card to get stolen.
Checks work like cash, but safer. They also work like gift cards, except that you can convert to cash and buy whatever you want. You can even use the check Memo to write your gift message.
Perhaps an electronic payment would be more efficient, but when it comes to gifts, people feel more excited to get actual mail these days.
- Better than money orders
Money orders aren’t necessarily more expensive, just riskier. If the sender somehow loses the mailed money, you need to pay hefty fees to your bank to recover the money.
But canceling a check should cost around $15, $30 at most. When recovering a money order, however, the cost could scale with your transaction value.
When To Write A Check
Writing a check is easy, but doing it doesn’t mean the payee will always receive the funds. There’s a time window since they receive it until they process it. Ideally, you want this window to be as small as possible to minimize the risk of fraud.
- Tell your payee to cash the check as soon as they receive it.
- If they want to delay, ask them when they need the money. Don’t write your checks sooner than necessary.
- If the person lost the check or didn’t receive it, only write the new one after canceling the other. You may ask to split the cancellation and mailing costs.
Before you write, make sure you have the amount in your bank. If you just need a few more days to get the funds, tell your payee not to cash it until a few days later.
Once you’ve checked for the context, you can fill out the data this way:
- Write the current date. When accounting, it helps you keep track of all the checks you’ve written by order.
- Enter the Payee. Who are you paying? If it’s a business, make sure you write their official name. When sending personally, the name should be easy to identify with the recipient’s IDs.
- Set the amount (numeric form). Before you write the value, keep the numbers as much to the left of the box as possible. After the last digit, also draw a line to the right so that it’s hard to change the value. If you send $100, it will prevent others from changing it to, say, $2,100, or $1,005.
- Amount (in words). When both forms are different, the written amount will override the numeric amount. Use capital letters and draw a line to the right when done. To include cents, you can either write that string or use a fraction like 50/100.
- Memo. Here, you can name your check, including the reason you’re writing it. It’s an optional field and won’t affect the way your bank processes it. For personal finance, it helps you organize among multiple checks and track where you sent money.
- Signature. No check is valid without your signature. Preferably, use a mark that you find easy to write and is hard to copy. Write this mark over the line.
Now, your check is ready for the payee. Make sure they claim it soon, or problems may arise, such as the expiration date.
Checks don’t exactly expire. But as time passes, your bank may reject checks six months after issue, depending on several conditions. The same deadline applies to certified, electronic, and cashier checks.
If you owe money, they may still accept it (US.Treasury and tax-related checks may last up to a year). But that delay exposes you to changes you don’t control.
- For a personal check, the sender may no longer have the funds, even though you requested within six months.
- For government checks, your state laws may change and affect the expiration date.
You can avoid all this uncertainty by requesting a check replacement. As a sender, you don’t need to worry about the first check if it’s no longer valid, but it’s still wise to cancel it just in case. Mind that the cancellation fee may affect the amount you get.
There are other types of checks which never expire, such as money orders and traveler checks.
How to read a check?
As a sender, you should keep a copy of every check written for financial tracking purposes. As a recipient, you should revise it to check whether there are mistakes or not:
- The address shows your sender’s personal information. Do the name and address match?
- Look at the payee line. Does it mention your name?
- The sender writes the amount with words. Is it the same as in the dollar box?
- Ask your sender about the written date. If it’s months old, does the check still work? If you get a post-dated check, ask them about the reason.
- Compare the signature with the sender’s name. When issuing electronic checks, you may find a message instead: “No Signature Required.” If you think it’s suspicious, you double-check it with your bank and sender.
- Read the bank information and logo. You don’t require an account with that bank to get your check (fees may apply). But if you process through your bank, they may hold your money in case the check bounces. Most take one to seven business days, depending on the amount.
- Checks also include identification data to help bank computers to process it. This information doesn’t have much use for payees: ABA routing number, checking account number, and bank fractional number. You may still want to record the check number on your register to keep track of expenses.
Before you send, you may want to add instructions on the back of the check. What if it gets lost, they don’t use it the right way, or someone else receives it? This section includes:
- Security Screen
The security screen has no use for consumers since only financial institutions can use it. To avoid photocopying the check, this “screen” includes the words Original Document with light ink, possibly with a line pattern on top.
- Security Box
It lists the security features that make this check original and hard to reproduce. It shows what you should look to verify a real check and avoid fraud. This warning also dissuades scammers from copying the document.
The endorsement is to fill out the check as the issuer and let the payee sign on the endorsement area, even leave it blank.
Recipients can deposit a check without signing as long as their name appears on the front, but it may lead to security issues later on. After the money is in your account, your bank may ask for verification a few weeks later. The check may bounce, resulting in extra fees.
- Sign where it says: “Endorse check here: do not write, stamp, or sign below this line.”
- Make your signature easy to read so that it matches with the payee’s name in the front.
- The issuer has already signed and doesn’t need to do it on the back.
- If your sender misspelled the name, make a signature with the misspelling, then add a second one with the right name.
A payee will then be ready to claim the money. But as a sender, you don’t want to leave a blank endorsement area unless the payee cashed immediately. A check without restrictions is easier to alter, and others could write on the back of the document.
Restrictions help us send the check to the right people and use it the way we intended. These measures make it almost impossible for thieves to alter or cash the check.
If you only want the payee to receive the money, write on this area: “For deposit only to account *********.” Make sure to avoid mistakes writing the account number, or your payee won’t be able to process the check.
You can send the same check other people you trust:
- If the payee line shows “Name1 AND Name2,” both people need to endorse it.
- If the payee line shows “Name1 OR Name2,” having one of them endorse the check will be enough.
Clients who pay businesses with checks will often write that name on the payee line. If that’s your case, you’ll need to endorse on behalf of your business:
- Sign the business name as it appears on the front
- Sign with your name
- Add your title in the company
Your bank will later check if you’re authorized to manage the company’s funds and process the check.
Sign Over Someone Else
After you receive a check from the issuer, you can instead send it to someone else by writing below your signature: “Pay to the order of (New Payee).”
Now, this technique can lead to confusion since banks don’t know whether the issuer authorized a third person to come in. Consult your bank first, since some institutions won’t let you do it for security reasons. If you need to send money to someone else this way, try instead to cash the check and choose another payment method.
Many issuers add endorsement restrictions for security, especially when transferring large numbers.
Checks aren’t always the best way to transfer money. You can’t guarantee the minimum security unless you add enough restrictions.
Voided checks become unusable for payments, thus protecting it from fraudsters. But why would an issuer send no payment?
As we’ve seen, checks include lots of information to identify the sender and the bank. Payees who may need this data request voided checks. So they can set up an electronic link with your bank account.
Void checks become useful for recurrent payments. Instead of writing a new check every time, you get the information from a voided check and set up an automatic electronic payment.
If you made a mistake writing your check and the payee has already received it, ask them to either destroy or void it. But if you think it’s lost, it’s safer to pay the cancellation fee.
How To Avoid Check Fraud
Even with the best practices, we’re still losing over $12 billion a year in bad checks. Perhaps the person you sent it to you doesn’t have the funds by the time to request it. More often, banks see fraudsters as the main responsible for this loss.
Whether it will affect you or not is up to your choice. No payment method is intrinsically risky as long as you know what you’re doing. You neither need to do any complicated guesswork. With prevention measures, you can process a fraudulent check and still not lose money.
#1 Use it as soon as possible
Let’s assume you understand the inherent risks of checks, and you only accept them from trusted people. Not only you trust, but also verify: you check for the amount, consult your bank, and whatnot.
The reason they sent you that check is, they expect you to use it as soon as you receive it. Checks work so that whenever you request payment, the sender has to have those funds available. What happens when you wait for months?
- You don’t know whether they will have enough money or transferred somewhere else.
- The user may have switched banks and closed the account.
- It may have been a mistake, and they canceled the authorization.
- Senders may think you never received it, or that someone else stole it. So they cancel it.
The least you can do is tell them when you will cash the check. But still, your sender might not have the funds by that time. Life is uncertain. It’s a lot easier to process it as soon as possible.
#2 Contact your sender
It doesn’t cost much to double-check with your sender once the check arrives. What would you do if the check your receiver gets looks different than what you wrote? Could it be a blunder? Could have someone manipulated it?
You see both the numeric and written amount, but they don’t match. If the written amount is still the one agreed, you can still process the payment. But since numbers don’t match, it would be safer to contact the sender and ask for a correction.
#3 Never send money back
Scammers send you fake checks and ask for real money in return. We all expect these to be genuine, except when the sender lacks the funds to complete it.
Besides, there’s no logic in overpaying on a check when you could instead send the right amount. If you mailed the wrong one, you ask for a cancellation and create a new one.
If they ask you to pay, assume the check is fake. Anything you pay will appear as debt, including the bounce fees.
#4 Keep it safe
Thieves usually ignore checks because it takes work to fake the identity and cash them. But if you’re sending large amounts, it may motivate them to steal it, forge the check, and take it.
When your bank deducts the amount, you will think the payee has already cashed it. They either never received the money, or someone stole it.
Both senders and receivers need to keep it secure. Checks take a few days to process, giving the scammer enough time to steal and alter it. Consider faster payment methods.
#5 Avoid common scenarios
You can’t ask anyone without sounding suspicious. As an unconventional method, there are limited uses where checks make sense. Here are the most popular schemes you should avoid:
- Mystery shopping and virtual assistant jobs. The partner sends you “working capital,” which you use for purchase instructions. The remaining sum is your (fake) paycheck.
- Overpayment. You send money after cashing the check because the sender overpaid “by mistake.”
- Unexpected prices. They send you the winnings on a fake check, and you send back a percentage to pay for the prize fees.