There are some risks in accepting checks that were endorsed to your customer by the payee of the check. Whether a check is made out to an individual or to a business entity, the bank may be risking liability to the payee of the check when allowing a customer to deposit such checks, as discussed below. However, if the checks are relatively infrequent or are for low dollar amounts, your bank may be willing to take on the risks of depositing the checks as an accommodation to your customer.

If you accept a check that has an improper or forged endorsement, then you may be liable to the payee on the check for conversion. 810 ILCS 5/3-420Bellflower AG Serv., Inc. v. First Nat’l Bank & Trust Co., 130 Ill. App. 3d 80, 88 (4th Dist. 1985). Due the risk of liability for conversion, it is generally a best practice to request from businesses a corporate resolution authorizing certain individuals to endorse checks for deposit at your bank. Similar risks may apply where your business customer deposits checks made out to an individual that the individual has endorsed to your customer.

That said, we understand that obtaining corporate resolutions from each business is not likely practicable, as the businesses endorsing your customer’s checks are not your customers, and each deposited check may relate to a one-time transaction between your customer and a particular business. And as to checks endorsed by individuals, there may be no way to verify the individual’s endorsement or signature. Given those risks, it is up to your organization to decide whether it is willing to accept these checks.