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May 27, 2014 10:31 AM   Subscribe

I have my own business. I have received a check payment. If I sign the check over to someone else, is it going to be a problem that I invoiced a client, yet their payment never appears as being deposited into my account or cashed by me?
posted by Enchanting Grasshopper to Work & Money (11 answers total)
Is it going to be a problem for who or in what regard? Please be a little more specific.
posted by ZabeLeeZoo at 10:33 AM on May 27, 2014

Yeah sorry: For keeping track of my accounting, especially if I'm audited.
posted by Enchanting Grasshopper at 10:35 AM on May 27, 2014

Cash the check and cut a check to whomever.

Don't cloud up your bookkeeping like this.
posted by Ruthless Bunny at 10:36 AM on May 27, 2014 [8 favorites]

I wouldn't do it. It will be more difficult to track payments received (because you won't have record of depositing the check) or made (because you won't have a copy of the check that cleared).

If your business is incorporated and your payment to your friend is personal, do not under ANY circumstances do this. Do not commingle business funds and personal funds if you want to maintain limited liability. IANYL
posted by janey47 at 10:37 AM on May 27, 2014 [2 favorites]

A check made out to a business can only be deposited into a business account with the same titling. If your bank teller doesn't catch it/allows it to be signed over (doubtful), yes, it can cause issues for you later.
posted by Juliet Banana at 10:39 AM on May 27, 2014

If you're audited, it would really depend on the amount of the check (among other things) I would think.

But like others have said, the best thing to do is keep it simple and straight, deposit this check and write a new check to your friend.
posted by ZabeLeeZoo at 10:46 AM on May 27, 2014

You can endorse a check to someone else. The way you would track this from a bookkeeping perspective depends a bit on how your chart of accounts are structured, but, basically, you would record a debit and credit for the same amount.

Do you have a bookkeeper and/or accountant? That person is the best person to help you with this.

If you don't, make a copy of the check after you've endorsed it, and write a letter to yourself on company letterhead saying something like "On May 27th, 2014, I received from Client A a check for payment of services in the amount of $X. On May 27th, 2014, I endorsed the check that I received from Client A for the benefit of Client B in the amount of $X."

This creates some paper record for you to refer to in the case of an audit or questions from your accountant.

I do agree, though, that simplicity is best. I would just deposit this check and write another one for the second party.
posted by dfriedman at 10:46 AM on May 27, 2014

I would cut a check, but if you must do this, then it needs a Journal Entry, preferably backed up with some paper: a copy of the check (with endorsements), a description of the actions you took, a copy of your receipt to the customer who wrote the check, and a copy of the receipt you'll get from the person to whom the check is being signed over.
posted by Sunburnt at 11:26 AM on May 27, 2014

From a strictly book-keeping standpoint, your really shouldn't do this. Enter the check as a payment applied to the invoice, then cut a new check to the individual.
posted by Thorzdad at 11:26 AM on May 27, 2014 [1 favorite]

Yeah I don't know why you'd want to do this. Dealing with third-party checks is an increasing PITA nowadays as well, so you're not doing your payee any favors by signing the check over to them vs. just depositing it and cutting them a new check from your business account.

The only reason I can think of to do the third-party check route (endorsing the check and handing it to your payee directly) is if your payee doesn't trust you to not bounce a check.

E.g.: if I was working as a contractor for Shifty McGee Inc., and they were being paid by BigCorp, and Shifty hadn't paid me in a while and owed me a lot of money, I might want them to take the next check from BigCorp and just endorse it and hand it to me, rather than deposit it and cut me their own check, because I don't trust that any check they write won't be bad. But I'd have to really not trust Shifty, because dealing with the third-party check would be a pain and probably involve an in-person trip to the bank and stuff. And if Shifty offered out of nowhere to just sign a BigCorp check over to me, I'd take it as a tacit admission that they're not solvent and their checks might not be good (or that they're up to some other accounting shenanigans, or their accounts are going to be frozen by the IRS on Friday, or whatever).
posted by Kadin2048 at 12:20 PM on May 27, 2014

100% of the banks I deal with will not take a third party check so it might not even be useful for your friend.
posted by vespabelle at 1:33 PM on May 27, 2014

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