NOMINATIVE CHECK: CHARACTERISTICS, WHAT IT IS FOR AND EXAMPLE - ECONOMY - 2025

The nominative check represents a document that someone (considered a giver or issuer) uses to make a payment to another (called bearer or beneficiary) without having to use cash. The beneficiary or favored of that payment is the legal or natural person whose name is on it.

The nominative check is characterized in that it stipulates an amount that the natural person or legal entity named in it will withdraw from the issuer's bank. The check is a means of payment.

The check is a negotiable instrument that instructs a financial institution to pay a specified amount of a specified currency from a particular account held in the name of the issuer at that institution.

In the second half of the 20th century, when check processing was automated, billions of checks were issued annually, peaking in the early 1990s. Today the use of checks has declined, being partially replaced by electronic payment systems.

characteristics

The nominative check is to be cashed or deposited exclusively by the payee who is explicitly named on the check.

It cannot be deposited into an account of a third person, other than that of the beneficiary. However, nominative checks can be delivered or assigned to a third party through an endorsement.

It must be taken into account that there are nominative checks that do not allow to be endorsed. If it is observed that the check has an “to the order”, it means that it could be endorsed. On the contrary, it cannot be endorsed if it has the stipulation “not to order”.

In order to cash the check, it must be presented at the bank, either to exchange it for cash or to deposit it in an account in the name of the beneficiary, within a specified period of time from the issue date indicated on the check..

The issuer of the check may void or revoke it if the indicated period of time is exceeded and the check has not yet been presented at the bank for collection.

Parts of a check

For the check to be valid, a set of essential data must be part of it.

- It is necessary that the order to pay the indicated amount in money be explicitly included.

- It must be signed by the issuer.

- The name of the bank that must pay the check must be clearly indicated in the document.

- For the check to be nominative, the name of the beneficiary must be entered. Otherwise it would be a bearer check, which would be paid to anyone who is going to cash it from the bank.

What is it for?

A nominative check should be used when making a large purchase and therefore it would not be practical to use cash. For example, many people use a nominal check when making a down payment on a house, since the amount is too large to carry cash.

When viewed from the payee's point of view, the nominative check is safer for him. When a nominative check is delivered to a third party, the immediate result sought is to prevent this document from being collected by someone other than the person named in the check payment order.

The nominative check can only be deposited in a savings or checking account that is in the name of whoever is the beneficiary of the check; if not, it will be returned by the bank.

Endorse a check

Even in this electronic age, the check is still the payment method used by many employers. To deposit or cash a check it must first be endorsed. There are three basic types of endorsements:

Endorsement blank

A blank endorsement is made when the payee named on the check supports it by putting their name on the back.

Signing the back of the check completes the negotiation that allows the transfer of the money ordered by the check.

A blank endorsement is the most common type of endorsement and is the least restrictive, as it does not limit marketability. Anyone else can negotiate a check with a blank endorsement.

Restrictive endorsement

A restrictive endorsement is made by writing "Deposit Only" on the first line of the back of the check and then signing the name below.

A restrictive endorsement limits marketability. "Deposit Only" is the most common form of restrictive endorsement and is used to avoid further negotiation of the check.

A check with a restrictive endorsement can only be deposited into an account in the name of the signer. One of the ways for the casher to minimize their risk of loss is by placing their own restrictive endorsement on the check.

Special endorsement

A special endorsement allows a payee to make a check payable to another person or entity.

A check with a special endorsement is signed when you want to deliver the check to someone else. It is different from a blank endorsement because the check can only be cashed or deposited by the person to whom the check is being assigned.

To make a special endorsement you must write "Pay to order of" and sign your name below.

Example

Whoever writes a nominative check to issue it must write the name of the beneficiary who is going to be paid on the site that says “Pay yourself to”.

If the nominative check is to be made to be cashed by Mónica Mariani, it must be placed in the space that says “Pay yourself to” the name Mónica Mariani. In this way, the collection of this check in the bank is restricted to only Mónica Mariani.

If it were a bearer check instead of nominative, this space can be left blank. It can also be placed there explicitly: "to the bearer". In this case, the person who collects the amount of the check will be anyone who presents it at the bank.

Although this can make things easier for a company at certain times, it can also involve certain risks, especially if theft or loss occurs.

A check can be seen below, where the words "to order" and "to bearer" have been crossed out.

References

1. Balance Track (2011). Checking Account Management. Taken from: balancetrack.org.
2. Money Services Business (2018). Endorsements. Taken from: moneyservicesbusiness.com.
3. Undertake SMEs (2016). The check: characteristics and types. Taken from: emprendepyme.net.
4. Third Party Checks (2016). What are Nominative Checks? Taken from: checksdeterceros.com.
5. Bank Client (2014). Everything you need to know about cashing checks. Taken from: clientebancario.cl.