Handling Inaccurate Company Names on Checks: Best Practices for Business Owners

Business owners frequently face the challenge of dealing with checks written to the wrong company name, even if the address is correct. This can lead to complications and potential funding delays. In this article, we will explore the best practices and provide a step-by-step guide to address such situations.

Why It’s Important to Have the Correct Company Name on the Check

The Pay to the order of field on a check is crucial. If the check is written to an incorrect company name, the bank may reject it, leading to potential delays or even the need for a chargeback. While the address on the check matches your business address, the name must match to ensure a smooth deposit process. Bank policies typically state that discrepancies in the name can result in the check being declined, even if the address is accurate.

Steps to Take When Dealing with an Incorrect Company Name on a Check

Contact the Customer: Notify the customer that their check has an incorrect company name and ask them to reissue the check with the correct name. Communication is key in resolving such issues promptly. Check with Your Bank: Reach out to your bank to inquire about their policies regarding checks with discrepancies. Banks may have specific guidelines and restrictions to follow. Keep Documentation: Retain any written statements or correspondence from the customer confirming the correct details for your records. This step is crucial for any potential disputes or discrepancies.

Legal and Financial Considerations

It is essential to understand the implications of dealing with checks that have an incorrect company name. If the discrepancy is intentional and the customer refuses to reissue the check, it could be perceived as a form of theft or fraud. This scenario can complicate your financial management and cash flow, particularly if you rely on prompt payments.

Deterring Future Issues

To prevent similar issues in the future, it is imperative to train all personnel involved in receiving checks, including managers and employees. Emphasize the importance of using the correct company name in the Pay to the order of field. Even in cases of sole proprietorships, ensure that the correct form of the business name is used. For C-corporations, this is especially critical as the check must be made out to the actual corporate entity, not the individual owner.

Examples of Correct and Incorrect Naming

For example, if your business is a sole proprietorship called 'John Doe, DBA Extra Wonderful Products', any of the following could be correct:

John Doe Extra Wonderful Products EWP Doe's Extra Wonderful Products

However, if the check is written to 'John Doe' instead of 'Extra Wonderful Products', you may encounter issues, especially if John Doe is only a member or manager of the Limited Liability Company. Similarly, if a C-corporation like 'Sweet Blue Denim Jeans Corp.' is owned by Jane Doe, the check should be made out to 'SBDJ' to be deposited into the commercial business account without issues.

Conclusion

Handling checks with incorrect company names requires careful attention to detail and proactive communication with the customer and your bank. By following these steps, you can minimize the risk of delays and ensure smooth cash flow for your business. Remember, the Pay to the order of field is non-negotiable in ensuring the correct deposit of checks.