What Are Business Checks and How to Use Them

Business checks are a fundamental tool for managing financial transactions within a company. They serve as a primary method for disbursing funds, enabling businesses to pay vendors, suppliers, and employees. Drawn from a business checking account, they contain specific company details, providing a traceable record of payments. Using business checks helps maintain clear financial boundaries and accurate record-keeping.

Understanding Business Checks

A business check is a payment instrument issued by a company that directs a bank to pay a specific amount from the company’s account to the named party. Businesses use checks to maintain clear financial records, essential for tax compliance and auditing standards.

Issuing business checks requires a dedicated business checking account, separating business and personal finances. This separation is important for legal and tax purposes, preventing commingling of funds that could complicate accounting and tax reporting.

Business checks offer traceability, acting as proof of payment crucial for resolving disputes or reconciliation. They are used for significant transactions or when a detailed, secure transaction record is preferred.

Anatomy of a Business Check

Each business check contains several specific components for facilitating and tracking financial transactions. The company name and address, representing the payor, are typically found in the upper left corner. The bank’s name and branch are printed on the check, identifying the financial institution holding the business’s account.

A unique check number, usually in the top right corner and part of the MICR line, helps in tracking and record-keeping, ensuring each payment can be uniquely identified. The date of issuance indicates when the check can be cashed or deposited.

The payee line, “Pay to the Order of,” specifies the individual or entity receiving the payment, requiring their full legal name. The payment amount is written in numerals and spelled out in words to prevent ambiguity and fraud.

An optional memo line allows for a brief description of the payment’s purpose, such as an invoice number, aiding reconciliation and record-keeping. The signature line, usually in the bottom right, requires an authorized signatory’s endorsement to validate the payment.

The Magnetic Ink Character Recognition (MICR) line at the bottom includes the bank routing number, which identifies the financial institution, and the account number, which identifies the specific business checking account, both crucial for automated processing.

Common Types of Business Checks

Businesses utilize various formats of checks designed to suit different operational needs and volumes of transactions.

Standard business checks are the most common format, used for everyday transactions, and can be personalized with company details. They often come in either manual or computer-printable forms.
Voucher checks are a popular type featuring one or more detachable stubs. These stubs provide a detailed breakdown of the payment, making them particularly useful for payroll or accounts payable, where comprehensive record-keeping for both the payer and payee is beneficial.
Computer checks, also known as laser checks, are designed to be printed using accounting software programs such as QuickBooks or Xero. This method streamlines the payment process, especially for businesses with high transaction volumes, by automating the entry of payment details.
Manual checks are those filled out by hand and are suitable for businesses with infrequent payment needs or in situations where printing is not feasible. They often come in checkbooks with a register for convenient handwritten record-keeping.
Blank check stock refers to pre-printed checks that contain only the business’s banking information and check numbers, allowing all other details to be filled in by accounting software and a printer.

Obtaining and Using Business Checks

Businesses can acquire checks through their financial institution or from third-party check printers. When ordering, businesses typically need to provide their account details, the exact business name, and the routing number associated with their business checking account. Many providers also allow for customization, such as including a company logo or specific branding elements.

When writing a check, accurately fill in the current date, the full legal name of the payee, and the payment amount in both numerical and written formats. An optional memo line can be used to reference an invoice number or purpose of payment, which assists in future reconciliation. The check must be signed by an authorized individual to validate the transaction.

Maintaining thorough records of all issued checks is important for financial management and tax compliance. Businesses should use a check register or integrated accounting software to track each check’s number, date, payee, and amount. This systematic record-keeping simplifies the reconciliation of bank statements, helps monitor cash flow, and provides the necessary documentation for audits or tax filings, typically requiring records to be kept for at least seven years.