Third-party check transactions can be convenient. For instance, if you have a check coming your way and owe a friend, instead of depositing the check and then writing a new one to your friend, you could just sign the check over. If someone without a bank account gets a check, a third-party transaction can come in handy, too. The person without the account can sign the check over to someone with an account, who can cash it. It’s easy to create a third-party check, but cashing it might not be as easy.
Third-party checks are unusual transactions, and if you’re involved in one, you might have to talk to a bank employee about it. In that case, it will help to know some basic official terminology. First, the person writing the check is called the remitter. The remitter writes the check out to a payee -- the person who will cash the check. When the payee signs the back of the check to cash it or deposit it into an account, the payee is endorsing the check, and the payee’s signature is called an endorsement.
A special endorsement occurs when a third person is brought into what is normally a transaction between two -- the remitter and the payee. When a payee wants to give the check’s money to a third party, she starts by endorsing the check on the back as she normally would. Beneath her endorsement, she writes “Pay to the order of," followed by the third party’s first and last name. By doing that, the payee has signed over the check’s money to the third party.
To cash the check, the third party also endorses, right below the words signing over the check to her, then presents the endorsed check to the bank. Be forewarned, though: Banks don’t always accept third-party checks. If you intend to sign over a check or have one signed over to you, call your bank to find out its policy beforehand. If you’re the third party, and your own bank won’t cash the check, call the bank on which the check is drawn -- that is, call the original remitter’s bank. Make sure you bring picture identification.
Third-party checks pose a problem for banks. How can they know if the signature of the original payee is valid? If the bank gives out money, and the signature is fraudulent, they lose the money. You, the third party, will be out, too, and will be liable for the funds. Instead of letting you cash the check, some banks will allow you to deposit it instead. You won’t be able to use the funds until the check clears. Do keep in mind that no bank is legally obligated to accept third-party checks.
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