Online banking is today’s trending payment options thanks to its fast and convenient features. So why do you need to learn how checks work?
While we now bask in the benefits of online banking transactions, many entrepreneurs and individuals still rely on and prefer checks payments.
While it is true that cash is still the number one payment option and credits cards being the second runner up, we cannot deny that when it comes to sending and receiving large sums of money, checks are still the jack of all trades.
If you want to know how checks work, what the pros and cons are, how to manage your checking account and how to cash a check, then you’re in the right place.
In this article, you ‘ll also learn how to accept checks safely and even get a quick and easy guide on how to fill out a check.
How do checks work?
A check or “cheque” is a written order that tells your bank to pay the person indicated on it (or a person who represents the company the check is addressed to) the exact amount specified. Some of the elements of the check are as follows.
- The payer’s personal information
- The name of your bank
- Your bank’s routing number
- Your checking account number
- The check’s ordered number in MICR numerals
- The date they can claim the funds
- The name of the payee or the person you wish to pay
- The dollar amount (both in words and Arabic Numerals)
- The payer’s signature
What are the benefits and drawbacks of using check payments?
Checks are a convenient payment option for individuals and businesses receiving and sending large sums of money.
You no longer need to withdraw a large amount of cash, travel and pay for goods and services.
All you need is your checkbook, the details of the payee and fill out the required details.
You don’t need to count, and the payee saves time by not having to count and verify the amount and authenticity of cash received.
When using and receiving check payments, you’d need to keep a close eye on your checking account in cases of rejected, bounced or fraudulent activities.
If you fail to do so and such an event happens, it can take several days before you receive an alert that your bank rejected or marked a check as a fraud.
You can schedule check payments way ahead of time.
This means you can release a check to a payee, but the funds get to stay within your account as they can only withdraw the funds on or after the date you indicated on the check.
You get to review the payment and stop the bank from deducting your account in case you made a mistake.
You need to tell your bank that you issued a post-dated check together with the details of the payment.
You also need to make sure there is enough so that the check won’t bounce.
When the payee tries to withdraw the check, and you don’t have enough money left in your account, you can get charged for penalty fees.
It can even affect your credit score, and even the payee’s trust and confidence in you which can result in you losing the opportunity to do business with them in the future.
You can now process checks electronically, thus allowing you to use checks to pay for goods and services online, through a mobile device and even over the phone.
This means you get to process transactions faster, spend less when processing the check and even reduce hands-on labor just to withdraw the funds.
Any transaction made online is at risk for fraud.
Hackers can get access to your checking accounts since you’ll be handling your banking details.
Also, just because you use a computer means you can worry less about errors.
You either cash a check or deposit the money.
Checks allow payees to keep their banking details private and still receive large sums of money.
Since all you need to withdraw the funds is to provide valid identification, you no longer need to provide your account details to the payer.
While some individuals and merchants still accept checks, there are some who no longer allow check payments.
Some are also reluctant to receive checks from banks that are unfamiliar to them and those that are out-of-state.
How to manage your checking account?
Always keep an eye on your account.
Keep your checkbooks in a safe place, and avoid signing blank checks with your signature. Record and check all transactions regularly.
Make sure that you know how to fill out a check and to be careful when writing one.
To avoid bounced checks, you need to always have enough funds on your checking account.
What are the two ways of cashing a check?
You have two options when cashing a check.
The first one is by cashing a check which means you walk away with the amount indicated and use it immediately for whatever reason.
The second one is by depositing it on your account. You have the option to keep the funds in a safe place if you have no immediate use for the funds.
How to be cautious when accepting check payments?
If you’re the one receiving check payments, make sure to only accept checks from banks you trust.
Usually, check with a low ordered number (100-500) are risky since it indicates the account is fresh and new.
Never accept altered, damaged and third-party checks.
Also, always verify the check’s information and make sure the payer’s name is clear and readable.
Tips on how to correctly write a check
It can be intimidating for first-time check users if you don’t know how to fill out a check. However, it is actually quite easy.
All you need to fill out the blanks on the check.
You’ll need to write down the date the payee can claim the funds, followed by the name of the person or company you wish to pay, the amount in numbers and in words, include a note if you want and then your signature.