Checks are pieces of paper written from one party to another for the purposes of transferring money to each other.  

1. A check is a "promissory note" ( I promise you money)  

2. Informally it is also referred to as an IOU (as in "I owe  you money")  

Checking Systems are "trust based systems"

1. Checks are accepted on "trust" that the person writing it is honest that they have the money to cover the IOU when it's presented to their bank.  In modern times, there are some ways to do balance checks digitally, but they don't offer the guarantee a credit card authorization does, by nature of the system.  This is an advanced topic that can be discussed later. 

2. You must keep the nature of the "trust based system", the public checking account numbering scheme, and the delayed transfer of money in mind if you decide to accept checks, and you must set up policies or routines for what checks you will and won't accept to protect yourself.  We provide information for this below. 

Any person or business that wants to open a checking account, and can provide a minimum set of identification to a bank, can open a checking account with an initial deposit of a small amount of money.   Typically there are minimum balances of $50, $100, or more to avoid a monthly service fee. Each bank is different. 

Any person or business with a checking acccount can then order checks from the internet, with no oversight from their bank or anyone else, and then write checks for purposes of paying others.  Blank check printing is not regulated. Any printing company interested in selling blank checks can do that.  You can actually print blank checks off from your computer with the right software. 

1. Unlike credit cards, where the account number is guarded closely, checking account numbers are handled as if they are public  information. 

2. This is a requirement because anyone you write a check to gets your number, can record it, and can look it up later via cancelled check images.  

3. This has always been a bit more "okay" because check fraud was established as a federal banking crime with far higher punishment than credit card theft.   

   1. 1. Credit card theft is a commercial crime against a credit card company not the federal banking systems. 

      2. Although Credit Card companies are eventually tied to federal banks, their corporate structure is separate from the banks, and thus they are deemed separate from regulated federal banks and regulated banking laws.  

      3. This is why check fraud is a federal crime and credit card fraud is not.  

      4. You may think the lack of enforcement of credit card theft as federal crime is bad for the corporations offering credit cards, they pass much of the damage along to the vendors and this has been a problem for decades, where corporations were taking advantage of smaller vendors. 

4. Saying this all a different way for reinforcement, given checks can be ordered by anyone with any numbers on them from online vendors, with no bank approval or approval by anyone else,  it is easy to purchase checks with the account number of others on them and/or with fake account numbers on them, but the penalties for getting caught using fraudulent checks is is a Felony and that is costly in several ways.   

5. For all these reasons, 

   1. Do not take checks when selling things at a flea market or from someone you may have trouble locating if there is a problem.  

   2. Do not accept checks when meeting someone to sell something you advertised on Craiglist either, for example.
      
      

With all this in mind, Checks are still an outstanding way to take money, and sometimes the preferred method, but only in situations where there is a Trust established or pursuit of a problem is thought to be straight forward. 

1. You know the person writing it

2. You know where or how to find the person writing the check via address, phone number, email address and/or  name if needed, 

3. You know they are from the local area with a personal reputation they would need to protect if it "bounced".   

   1. A check that is rejected for lack of funds in the check issuer's account is said to have "bounced" (like a rubber ball off a wall) if there is not enough money in their account to cover the check.  While bounced checks do constitute serious  criminal activity,  if you can't find the person you can't try to collect easily. 

Business Customers like to use Checks

1. They can include information about the transaction on the check that can not be included when making credit card purchases. 

2. They can write checks and hold them for delivery

3. They can post date checks. This means they put a date in the future on the check, and in theory the check can not be cashed until that date. 

 These benefits of check writing give individuals and businesses "cash flow" control tools that credit cards do not offer. 

For these reasons, if you deal with Businesses, it helps if you are able to accept checks and understand how to work with them. 

There is no fee associated with processing checks like credit cards, so in that sense it is better and like working with cash.  

There are also other benefits to taking checks if you are doing business in your own name,  although those we are referring to are related to illegal activity. 

1. Scenario 1 - Imagine you are a sole proprietor doing business under your own name.   "John Doe".  You might have a plumbing business or a chiropractic business but you do business in your own name. This is legal. You don't have to have any name other than your name to do business. When they write a check to you, it is in fact a personal check not a business check. It only becomes a business check if you deposit it into your business account or claim it on your income some other way.  The personal check can be cashed at your bank, their bank or a check cashing facility with no sales record of it. It can also be endorsed to others.  This is tax fraud and it is illegal, but it is done all the time. This is one reason why people do business in their own names only with no additional trade name.  
    

2. Scenario 2 - Imagine you are a sole proprietor doing business as   "John Doe Plumbing".   When you do business like this, you often do not need to file for a trade name since your name is in the name of the business you are operating as.  The difference between getting a check written to John Doe vs John Doe Plumbing is significant. The personal check can be cashed at your bank, their bank or a check cashing facility with no sales record of it. It can also be endorsed to others. As stated above, this is tax fraud and it is illegal, but it is done all the time. The Business check will only be able to be deposited into your business checking account.  It can not be cashed nor endorsed to others. 

   1. Most older customers  know about this nuance. Do not assume all of them approve of people avoiding income tax. Some are fine with it while others are not. The ones who are not may think less of you if they realize you are cashing checks intended for business. 

   2. If you get a check written in your name only, they likely knew what they were doing.  

1. If someone  asks you how to make out the check, they may be testing your financial ethics OR they may just want to start a dialogue with you about finance. They may want to see if you are smart enough to realize they know what's going on too, and then you can feel them out for which way you may want to tell them to write it.  Some people are doing it because they are willing to write it in the personal name, but if the vendor prefers the full title for some reason,  they will do that too.  

ZAP Accounting Software offers a Bank deposit management software utility that helps create deposit slips. It includes a cash bank management system and a check listing system in it.  This is a very useful tool that was developed over 8 years of use in an Acupuncture Clinic.  We hope to have a summary of this software utility on the BRICs site eventually.  Until then please use the ZAP Software Website for that resource.   

https://www.zap-accounting-software.com/bank-deposit-prep-wb.html