How Do You Write a Not to Exceed Check?

While this method of payment remains common, certain situations require a more flexible approach, where the exact final cost is not yet known but a maximum spending limit needs to be established. A “not to exceed” check addresses this specific need by allowing a payment up to a predefined maximum, with the final amount being the actual cost incurred, provided it does not surpass the cap.

Purpose and Scenarios for “Not to Exceed” Checks

A “not to exceed” check functions as a payment instrument where the issuer authorizes a payee to claim an amount up to a specific maximum. The final payment will correspond precisely to the actual cost of goods or services rendered, as long as it falls within or at the stated upper limit. This mechanism provides flexibility for variable expenses while simultaneously protecting the issuer from unexpected charges that exceed their budget.

The primary purpose of this type of check is to grant permission for payment when the exact figure is uncertain, yet financial exposure must be controlled. This approach is particularly useful in various real-world scenarios. For example, when hiring a contractor for home repairs, such as a plumbing issue, the precise material costs might be unknown initially, but the homeowner can issue a “not to exceed” check to cover parts and labor up to a set maximum, like $500.

Another common application involves reimbursing an employee or family member for expenses that will be submitted later, such as travel costs or office supplies, up to a pre-approved limit. Similarly, when paying for a service where minor additional costs could arise, a “not to exceed” check ensures that any unforeseen charges remain within a defined budget.

Essential Information Before Writing

Before writing a “not to exceed” check, gathering specific information is necessary to ensure its accuracy. The first piece of information required is the full and exact name of the payee.

Establishing the maximum amount the check should cover, the “not to exceed” limit, is also crucial. Additionally, clearly defining the purpose of the payment is beneficial; this could be a brief description like “for car repair,” “for office supplies,” or “reimbursement for travel expenses.”

The current date on which the check is being written must be included. Finally, confirming that sufficient funds are available in your checking account to cover the maximum “not to exceed” amount is a fundamental step.

Step-by-Step Guide to Writing the Check

Begin by writing the current date in the upper right-hand corner of the check. This includes the month, day, and year, and it can be written numerically or with the month spelled out. Ensure the date reflects when the check is actually being issued.

Next, locate the line labeled “Pay to the order of” and carefully write the full legal name of the person or entity receiving the payment. Accuracy here is important to ensure the check can be properly cashed or deposited by the intended recipient. If paying a business, use their exact registered name.

In the small box located to the right of the payee line, typically marked with a dollar sign ($), write the maximum numerical amount that the check will cover. For example, if the limit is five hundred dollars, you would write “500.00.” It is important to write this clearly and as close to the dollar sign as possible, filling the space to prevent any unauthorized alterations.

Below the payee line, there is a longer line where the amount must be written out in words. This is where you will include the “not to exceed” phrasing. For instance, if the maximum is $500.00, you would write “Five Hundred and 00/100 Dollars Not To Exceed.” After writing the amount and the “not to exceed” phrase, draw a line through any remaining blank space on that line to prevent additional words or numbers from being added.

On the “Memo” line, usually found in the bottom left corner, clearly state the purpose of the payment and reiterate the “not to exceed” nature. For example, you might write “Car Repair – Max $500” or “Reimbursement for Travel – NTE $250.” This provides a clear record for both you and the recipient regarding the payment’s intent and limit.

Finally, sign your legal signature on the line in the bottom right-hand corner of the check. Your signature authorizes the payment and validates the check. Without a signature, the check is not valid and cannot be processed.

Key Considerations After Issuance

Once a “not to exceed” check has been written and provided to the payee, several practical considerations come into play. While this type of check is generally accepted, bank policies can vary regarding how they process checks with such specific notations. It is advisable for the payee to confirm with their bank about the acceptance and handling procedures for a “not to exceed” check, especially if they are unfamiliar with it.

Clear communication with the payee is essential, ensuring they fully understand that the check is for an amount up to the stated maximum, and that they should only deposit the actual amount owed, which must not exceed the cap. The payee will typically need to provide documentation, such as an invoice or receipts, to substantiate the exact amount they are claiming. The bank will typically only honor the check up to the written “not to exceed” amount.

Maintaining detailed records of the actual amount paid once it is finalized is important for your financial tracking. This includes noting the exact amount, the date it cleared, and any supporting documentation provided by the payee. This record-keeping helps in reconciling your bank statements and for tax purposes. In instances where a check is no longer needed or an error was made before it is cashed, it is possible to void the check. To void a check, write “VOID” in large letters across the entire front of the check to prevent it from being used, and then keep it for your records.