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What Are Third-Party Checks?
by John Burnett, BOL Guru

Question: Can you give me the definition of a third-party check and give an example?

Answer: A third-party check is one on which the drawer, the drawee and the payee are all different parties.

For example, assume you have a checking account at ABC Trust Company. When you issue a check payable to XYZ Electric Company, you are the drawer, ABC Trust Company is the drawee, and XYZ Electric Company is the payee. It's a third-party check.

Another form of third-party check is a check being deposited by your customer that was made payable to a different person (the third party) and negotiated to your customer. Suppose your customer issues paychecks to its employees using ADP Payroll Services and they are drawn on another bank. Your customer cashes checks for its employees, obtaining their endorsement, and then deposits them with you. These are third-party checks.

First published on 2/21/05

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