Checks: Overview, definition, and example
What are checks?
Checks are written, dated, and signed financial documents that instruct a bank to pay a specified amount of money from the writer's account to a designated person or entity. A check serves as a method of payment for goods or services, and the person or business receiving the check can deposit it into their bank account or cash it at a financial institution. Checks are commonly used for personal, business, and government transactions, though they are becoming less popular with the rise of digital payment methods.
Checks typically include important information, such as the payer’s bank account number, the payee’s name, the amount to be paid, and the date. The check also includes a signature from the payer, authorizing the payment.
Why are checks important?
Checks are important because they provide a secure, traceable way to transfer money without the need for cash. They are commonly used for large payments or transactions where electronic transfers may not be practical. Additionally, checks offer a paper trail, which can be useful for record-keeping, resolving disputes, or proving payment in legal contexts. They are also beneficial for individuals who do not have access to or prefer not to use credit or debit cards.
For businesses, checks are often used to pay suppliers, employees, or contractors. They can be a safer alternative to cash payments and provide a written record of the transaction for accounting and auditing purposes.
Understanding checks through an example
Imagine a small business that needs to pay a vendor for supplies. Instead of making a cash payment, the business writes a check for the agreed amount. The check is addressed to the vendor, who deposits it into their bank account. The bank processes the check, and the funds are transferred from the business’s bank account to the vendor’s account.
In another example, an individual writes a check to pay for their rent. The landlord deposits the check into their bank account, and the payment is processed through the banking system, transferring the funds to the landlord.
An example of a checks clause
Here’s how a checks clause might appear in a business agreement:
"All payments under this Agreement will be made by check, payable to [Recipient Name], and mailed to the address provided by the Recipient. Payment shall be due within 30 days of the invoice date, unless otherwise specified in the Agreement."
Conclusion
Checks are a widely recognized and reliable method of payment that provide both parties in a transaction with documentation and security. Though they are used less frequently in favor of digital payments, checks remain important for businesses and individuals who prefer a paper-based payment option. Understanding how checks work and their role in financial transactions helps businesses manage payments effectively and ensure proper record-keeping.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.