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#1614697 - 10/12/11 02:57 PM Cashing checks for business customers
Compliance101 Offline
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We have a business customer that wants to cash their checks that are written to the business. These checks are normally 50-200 each. We know this customer very well. Is there anything that says we cannot cash these checks?
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#1614721 - 10/12/11 03:13 PM Re: Cashing checks for business customers Compliance101
BrianC Offline
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This question is asked frequently both on the threads and on the Ask a Guru feature.

Here are some answers for your consideration.

Cashing Business Checks

Cashing a Check payable to a partnership

Owner cashing checks payable to business

Cashing Corporate Checks


The bottom line is that it is a bad business practice and a bad banking practice and should not be permitted. The business owner can deposit the checks to the business account so there is a paper trail for accounting/tax purposes, and provided they have the authority to do so, write a check payable to themselves or cash and withdraw the funds from the business account.
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#1614722 - 10/12/11 03:15 PM Re: Cashing checks for business customers Compliance101
edAudit Offline
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#1614739 - 10/12/11 03:26 PM Re: Cashing checks for business customers edAudit
osucpa Offline
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Check the UCC about checks made out to a business.

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#1615083 - 10/13/11 11:30 AM Re: Cashing checks for business customers osucpa
Elwood P. Dowd Offline
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The UCC does not specifically address this issue. It basically assumes no bank would consider cashing a check payable to an entity, but would hold them liable if they did.
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#1615739 - 10/14/11 05:02 AM Re: Cashing checks for business customers Elwood P. Dowd
Princess Romeo Offline

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All it takes is one massive subpoena from the IRS for copies of all cashed checks that did not flow through the business account to help you see the folly of this practice.

It happened to one of the posters here on BOL. Their "good" customer was under-reporting revenue. I can't recall if it was 2, 5 or 7 years worth of copies of cashed checks that were required. It was ugly and expensive.
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#1615853 - 10/14/11 03:05 PM Re: Cashing checks for business customers Princess Romeo
BrendaC Offline
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It is a matter of case law in Alabama. A large bank challenged this practice all the way to the AL Supreme Court - and lost. The judge ruled that checks payable to corporations should be considered as "for deposit only" to an account of that corporation.
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#1616222 - 10/15/11 05:52 PM Re: Cashing checks for business customers BrendaC
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#1616241 - 10/17/11 09:53 AM Re: Cashing checks for business customers Compliance101
Elwood P. Dowd Offline
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Compliance 101,

Your customer would like to cheat on his income taxes. It's a lot easier for him to do that if your bank is willing to be an accomplice and assume a significant amount of uncompenstated risk.

Bankruptcy court (federal) in Illinois held the bank liable for all funds diverted from a corporation using this method. (This result is inevitable under the UCC.)

You really do not want to do this.
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#1764021 - 12/05/12 03:55 PM Re: Cashing checks for business customers Compliance101
morirse de risa Offline
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Is this just something corporations cannot do (per UCC)? Management wants tellers to be able to do this for all businesses but corporations. Would the risk only be having to compile copies of checks for a subpoena?

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#1764084 - 12/05/12 05:16 PM Re: Cashing checks for business customers Compliance101
rlcarey Online
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First you have to look at the resolutions that you received from the entity. If you are using the canned resolutions from the typical deposit documentation systems, there are no provisions in those that allow checks to be cashed. So regardless of the "best practice", UCC, subpoena, or IRS considerations, you are most likely on the hook for every check cashed by an authorized signer.
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#1764086 - 12/05/12 05:24 PM Re: Cashing checks for business customers morirse de risa
John Burnett Offline
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Originally Posted By: morirse de risa
Is this just something corporations cannot do (per UCC)? Management wants tellers to be able to do this for all businesses but corporations. Would the risk only be having to compile copies of checks for a subpoena?


The ONLY business payees that a bank should consider cashing checks for are sole proprietorships, and then only for the individual who is the sole proprietor (SP), not for anyone else who is authorized to sign on the SP's account. That's because the business and the SP are one person under the law. The same cannot be said for LLCs, LP, partnerships, LLPs, associations or other entities.

If management has experience dealing with bank policies as a teller, it would also recognize that having a special rule for SPs can create training and "in the trenches" confusion, since it can be a challenge for a teller to understand the difference between an SP and a business entity, and even more of a challenge to determine whether a given business customer is an SP or an entity.

I recommend a "no cashing checks payable to businesses" policy and a reminder to SPs that if they want to be able to cash checks they receive in their business operations, they can ask that the issuers make checks payable to the individual SP rather than to the business name.
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#1764092 - 12/05/12 05:34 PM Re: Cashing checks for business customers Compliance101
*W*W* Offline
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That's a bad habit to start.

Similar story locally. Bank customer was on the board of and ran a community development organization. She went to her local bank and cashed checks payable to the organization...Same reasoning. She was well known, was somebody's somebody, and had money; so "no reason to steal from the organization"....She was tried and found guilty taking hundreds of thousands from the org over the course of several years. Bank helped to make restitution for the lost funds.
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#1764099 - 12/05/12 05:45 PM Re: Cashing checks for business customers Compliance101
morirse de risa Offline
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Thank-you all for your input, much appreciated.

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