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Risks of accepting third-party checks

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Question: 
We are re-evaluating the practice of accepting third-party checks. Can you recommend a source for me to research and present the risks to executive management?
Answer: 

The risks of accepting any check for deposit is found in your state's Uniform Commercial Code. Specifically, section 3-417. By accepting a third party check you are making a warranty to the drawee bank that you have verified all endorsements. Depending on the statute of limitations in state law, the original payee may have between 60 days and three years to contact the maker of the check to claim that their endorsement was forged. The maker would contact their bank who would then contact you to seek reimbursement.

The risk is simple, if you accept a check with a forged endorsement, will you be able to recover the funds from your customer three years from now?

First published on 03/27/2016

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