Thursday, October 27, 2011

Order Checks vs Bank Checks

Traditionally cashier's checks have been among the safest checks to accept. This is because the promise to pay is made by the bank issuing the check - not the person who uses the check. They are sometimes called bank drafts. Let's contrast order checks with a personal check. When you write a personal check, you're supposed to have available funds in your account to cover the check. However, you may know that the payee won't get the check to the bank for a few days, and that processing will take another few days. Therefore, your account won't be debited for several business days after you write the check. If you don't have the funds available today, you can always hope that they'll clear before the check is presented to your bank for payment (so you write the check anyway). This practice is called floating checks. Unlike personal checks, bank checks debit your account when they are issued. This means, of course, that you can't get a cashier's check unless you actually have available funds in the account. Once your account is debited, the bank is responsible for paying the payee. Now, if you're a merchant who accepts order checks from customers, which would you rather take - a cashier's check or a personal check? Of course, your odds of being paid are better with a legitimate cashier's check.

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