Banking Basics

How to Endorse a Cheque over to someone else



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We all know how easy it is to hand cash over to someone else. So how can I hand over my cheque to someone else?

A cheque is basically a piece of paper which declares that the payee is entitled to take the written amount from the payer's bank account. Many cheques usually come pre-printed with the term "Not Negotiable" across them, which prevents anyone other than the payee from depositing the money.

It also prevents the payee from accepting the payment as cash (Unless, of course, the cheque states "Pay to the order of: Cash") In other words, in order to accept the payment, the payee would usually have to deposit the cheque into their bank account. The payee will then have to wait around 3-5 days for the money to be available.

This waiting period can seem like forever, especially if you require the cheque to be cleared in order for you to pay someone else. Or perhaps you owe a friend, or would like to provide a loan to a friend. Whatever the reason may be, endorsing the cheque over to them could be the solution you are after.

Would you sign a blank cheque for someone else? Or would you leave a hundred dollars on a table at Maccas while you went to the bathroom? No? Then I would suggest that you avoid blank endorsements. This means simply signing your name on the reverse side of a cheque. It can be collected by anybody as you, the payee, have signed off on it.

While your signature is the most important aspect of an endorsed cheque, it makes sense to include details of who the cheques' new owner is. The wording used in your endorsement can also have an impact on the future of your cheque.

For example, you can restrict the endorsement in that it can only be transferred into the account that you list. Something along the lines of "Strictly for deposit only into the account of John Doe". This type of comment will prevent anybody else from getting to the money.

Or if you would like the new owner of the cheque to have a bit of flexibility, you can write something a little looser, such as "Pay to the order of John Doe" This type of endorsement will still allow the cheque to be deposited by John Doe, but leaves him with the option to endorse the cheque onto another party if he so wishes. It is for that reason that you can see this option is not as secure as a restrictive endorsement.

In spite of the above, depending on the bank you use, they may only accept endorsed cheques where the front of the cheque states "Pay to the order of: Payee". If you are in receipt of a cheque which simply states "Pay to: Payee", your bank may refuse the endorsement as the original payer has used terminology similar to that of your restrictive endorsement. Other banks may also have further security measures in place to avoid fraudulent cheque endorsements. If one of the above methods does not work for you, speak to your bank to see what their requirements are.

Quite a lot of hassle for a little piece of paper. Next time, use cash!

More about this author: Amanda Bremner

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