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A third-party check is a check issued by an individual or business to pay another person. Financial institutions in the U.S. are not obligated to accept third-party checks, and many banks are far less likely to accept them compared to the past. However, if you find yourself in a situation where issuing a third-party check is the best option, it's important to follow best practices to improve your chances of success.
Steps
Planning Before Issuing
Consider your options. Due to stricter banking security and identification regulations in the United States, you may face challenges finding a bank that accepts third-party checks.
- If you have a bank account and funds or cash available for the check issued to you, it’s easier to simply endorse your check (or transfer cash) to the third party.
- Endorsing a check might seem more convenient (by cutting out a middleman, so to speak), but it’s often no longer the case.
- Explore electronic transfers of funds to your third party, either through an existing bank account or a service like PayPal, if you’re seeking a convenient option.
- If you: 1) have a check issued to you; 2) don’t have a bank account; and 3) need to pay a third party with the funds from the check issued to you, this is the only scenario where you might consider endorsing a check. Refer to Part III of this article for details on this situation.
Confirm that the third party, the person you want to endorse the check to, will accept the endorsed check.
- Ask the individual if they have previously used a third-party check at their bank. This increases your chances of success, as there is no law requiring banks to accept third-party checks.
Verify that the third party’s bank accepts such checks and understands their specific procedures. If you cannot reach them immediately but know their branch, call customer service to confirm their acceptance of this type of check.
- Inquire about any special procedures the bank requires for accepting third-party checks. Some banks have unique rules, such as requiring both parties to have accounts to ensure sufficient funds for transfer.
Accompany the third party to their bank in person. Completing this process face-to-face may be required by the bank and will significantly improve your chances of success.
- Bring appropriate identification, especially if it’s not the bank where you hold an account.
Endorsing the Check
Endorse the check as usual, but keep your signature in the upper part of the endorsement area. If the check has three lines, sign on the top line. This is not the time for flair, as you’ll need all the space to complete the process.
Print 'Pay to the Order of' and the third party's name in the middle (or second line) of the endorsement area. If space is insufficient, you can use 'FBO' (For Benefit Of), but it’s advisable to confirm with the bank first.
- Write neatly, especially the third party’s name. Double-check spelling.
Do not allow the third party to sign the check until it has been deposited or cashed. Ask the third party (the payee) to sign at the bottom (or third line) of the endorsement area. If they are unavailable, mark an 'X' to indicate where they should sign, and/or attach a polite note reminding them to sign the check.
Exploring Alternative Options
Open a bank account, deposit the check, and then pay the third party. As noted, you’re likely endorsing a check because you lack a bank account. If you can open one, do so, as it simplifies the process.
- To open a checking account at a U.S. bank, you must be 18 or older, provide basic information like your full name, contact details (phone/email), and Social Security number, and present a government-issued ID.
- Look for a free checking account at local banks or online banks, where free accounts are typically available.
Ask the original check issuer to void the check and issue a new one to the third party. This is more feasible when dealing with an individual, like your aunt, rather than a large corporation issuing a refund check.
Ask the original check issuer to add 'or pay to the order of' after your name on the check (and future checks issued to you). Checks with 'or pay to the order of' after the payee’s name can be deposited or cashed (depending on the bank’s policy) by the person presenting the check.
- The third party should be prepared to show identification when depositing or cashing the check, especially for large amounts, as per the financial institution’s policy.
- Checks endorsed with 'cash or pay to the bearer' or simply 'pay to the bearer' will function similarly.
Use a check-cashing service. You’ll pay a fee for this service, but you’ll receive cash to pay your third party.
- Check-cashing fees range from 1% to 12% of the check amount, so shop around for the best rate. Some retailers, including Walmart, offer this service.
- You’ll need a photo ID to cash the check.
Tips
- You won’t have proof or a receipt for the check in your bank account. Since the check is endorsed upon acceptance, consider making a copy of it as proof or a receipt before endorsing it.
Warnings
- Third-party checks can be targets for fraudulent activities, so only endorse a third-party check for individuals you know and trust.
