Cashing a check seems simple enough; people do it everyday. But banks and other check cashing entities may not cash or deposit a business check. Institutions cashing these checks are responsible for and may be liable if the check is fraudulent. To cash a business check, typically the signer must be the designated payee on the check.
Receiving cash from a paycheck is not an issue. The employee's name should be noted as the payee on the check being cashed. Employees can cash paychecks at banks, grocery stores or any paycheck cashing facility.
Cashing or depositing business checks by business owners into personal accounts is possible but not recommended. Placing business funds into a personal account may send a red flag to the IRS that a business owner is hiding business funds in personal accounts. If a business owner deposits a business check into a personal account, they are not claiming these funds as personal income or reporting them as business income.
Maintaining separate business and private banking accounts is recommended for business owners. Business accounts have different rates and service requirements than personal accounts. It is important to understand the difference between the two.
Cashing a check made out to a business and not an individual will be difficult if the check is not properly endorsed. The individual cashing a business check must be an authorized representative on the business account. To cash checks, businesses must follow the regulations as noted when opening their business accounts.
Endorsing a check properly will allow quicker completion of the transaction. If a check is payable to a business, banks may not allow the deposit placed in an account differently than the check is addressed. If the check is fraudulent, the bank will be held accountable for aiding in a fraudulent transaction.
The wisest choice is to deposit a business check into a business account. Any funds from the business account should be paid via check and addressed to the appropriate payee. This is the best practice for a business, business owners and all employees. It discourages fraud by employees and shows that business owners are not hiding funds.
Mishandling business and personal funds may be punishable by law and subject to penalties by the IRS.
Action by the IRS could be taken with private business owners if: 1) checks from the business are deposited into the owner's private banking account; 2) personal expenses are paid with business account funds; 3) personal expenses are misclassified as business expenses; or 4) accurate records are not kept.