As a business owner, you want to make it as easy as possible for customers to pay you. While many may prefer to pay with cash or credit cards, some may prefer checks.
This isn't bad news for you: the costs of processing credit card payments and the possibility of credit card chargebacks often make checks a less expensive way to receive payments. But the process of endorsing checks to your company is slightly different than endorsing personal checks.
Learn what information you need to include to endorse a check made out to your business.
How to Endorse Business Checks
To endorse the check, go to the endorsement area on the back of the check. This is the short section at the top where it says “Endorse Here.” Using a pen, complete the endorsement by:
- Writing the business name, which should match the payee on the front of the check
- Signing your name
- Writing your title (President, Owner, Treasurer, etc.)
- Adding any restrictions to the check that you require
If you accept a large volume of checks (more than a few per day, for example), you can also endorse your checks using a stamp. Online check printers and office supply stores can create a stamp with all the required information, allowing you to fly through endorsements.
Ask your bank about any specifications before ordering a stamp. They may have detailed requirements, and it’s best to follow those instructions to avoid delays in payment processing.
Your entire endorsement should fit in the area above the line on the back of the check (although there is some wiggle room). A few issues that keep everything from fitting in this area could include:
- An especially long business name
- The need for multiple signatures
- Any restrictions you add
Restricting the Endorsement
When you endorse a check, you authorize whoever has it to collect the money. This doesn't usually cause problems because your bank will collect the money and deposit those funds into your account.
However, if a check is lost or stolen after it’s endorsed, a thief could potentially cash the check or direct the deposit to a different account.
A restrictive endorsement reduces your risk by limiting what happens to the funds after you endorse the check. For example, you can prevent the check from being cashed, so there will always be a paper trail showing where the money goes.
The most common restriction is to write “For deposit only to account #XXX” (using your account number). This means the check must be deposited to the account you specify and cannot be cashed.
Cashing a Check Paid to Your Business
Banks are often hesitant to cash checks made payable to businesses, so you’ll probably have to deposit most of the checks made out to your business.
It is possible to cash checks made out to a business, but it’s challenging. This is because cashing a check is equivalent to withdrawing money.
Businesses may have multiple owners and require the approval of several people to withdraw or spend money. Banks are often hesitant to cash business checks if they don't know the person holding the check is authorized to spend that money.
If you do need to cash a business check, your best bet is using your own bank (where you have your business checking account) after your account has been actively used for a while.
Acting Like a Business
It’s wise to require that customers write checks to your business rather than to you. In addition to demonstrating that you are a legitimate business, this helps you limit your personal liability if something happens to the company.
Using Personal Accounts
Dealing with business checks brings added expenses and inconvenience, so you might be tempted to have customers make checks payable to you (as an individual). You might even be tempted to deposit business checks into your personal account.
However, banks aren’t supposed to deposit those business checks to your personal account unless you sign the check over, which is also unlikely to be approved. This is true even if you are the sole owner and employee.
If the bank notices you are trying to deposit a check paid to a business into your personal account, you risk delays getting paid and other complications.
Even if you can get business checks into your personal account, using a business checking account for your business income limits your personal liability.
Using your personal account puts your personal assets at risk, and blurs the line between your personal life and your business life for tax purposes. Look for an affordable business checking account to keep your personal and professional lives separate.
Other Ways to Get Paid
If checks are too burdensome for your business, there are other payment methods you can use:
- Cash: If cost is your primary concern, cash is the least expensive option. However, it can create security concerns, operations processes, and logistical challenges.
- Plastic: Credit and debit cards are favorite tools for consumers but can be costly for merchants because of transaction fees. Be mindful of rules around adding surcharges to credit card purchases.
- Electronic payments: For more affordable payment processing, try collecting funds directly from customers’ bank accounts. ACH payments often cost less than card payments.
- Fintech payments: Businesses can use the many companies facilitating online payments such as PayPal, Square, Stripe, Amazon Pay, Apple Pay, Google Pay, and more. In general, these platforms enable fast, frictionless transactions with reliable security systems and lower fees than credit card processing.