A check is a formal I owe you, a promise to pay money from a particular source to a specific entity like a person or firm. Business checks come in various types to fit the purpose of writing. The advantages of check writing over cash are:
Mailing: A check mailing service allows check settlement without personal contact, unlike cash payment.
Safe: They are convenient to use in areas where carrying cash would be dangerous. You do not have large amounts of money when using checks. You can request your bank to stop payments to that check if it gets lost or stolen.
Convenience: You can use checks to pay for various services and products. They are ideal for travelers who do not need to carry cash wherever they visit. They are cheaper to use when compared to traditional payment methods like money orders.
Monitoring: Checks help you track your spending behavior compared to cash payments. You can see all honored checks and canceled ones to determine the amount in the account.
Types of checks
There are several types of checks depending on the purpose.
Personal checks: Personal checks are the most common, and it is only payable to the person named on them. The check issuer must ensure there are enough funds in the account to cover the check amount.
Bearer check: This type is payable to anyone who presents it for payment in a bank. It does not contain any name, and banks can advance money without checking the bearer’s account.
Certified check: Banks verify the availability of enough funds in the check owner’s account and the signature, then issue one with a check for payment on behalf of the account owner. The bank withdrawal the stated amount from the owner’s account and holds it to settle the payment.
Cashier’s check: It is an acknowledgment by the bank to pay and not the account owner. The bank writes the check, signs it, and makes payments. Banks use them to pay for loans and third-party payments claims.
Traveler’s check: As the name suggests, they are prepaid and customized for travelers. They are used to clear bills in hotels and establishments which accept them and damage, theft, and loss insured.