Most Americans use direct deposit to have their paychecks sent directly to their bank accounts and also use credit cards, PayPal and other digital technologies to send and receive money. Occasionally, however, it's necessary to use paper checks to pay and be paid, and checks must be endorsed before they can be cashed. The Uniform Commercial Code sets out specific regulations for how checks should be sent and received. The UCC requires that paper checks be signed on the front by the person writing the check and signed on the back by the person cashing the check.
Different Types of Signatures Are Permitted
The UCC defines a signature in several ways: A signature can be written manually or made by means of a device or machine. The person cashing the check can sign his name in ink on the back of the check or use a rubber stamp, which is usually made to order at an office supply store. The UCC also permits the use of any name, word, mark or symbol that payees use regularly to identify themselves or their company. For example, signing the back of the check with a rubber stamp containing the name of a business, company or organization is valid.
If you deposit a check without signing it or if you sign it with a signature that’s different from the payee's name on the front of the check, the bank has the right to refuse to honor the check.
Be Aware of Fraud
Although it is permissible to endorse a check with a rubber stamp, you must be careful about who has access to the stamp. For example, in Massachusetts, a bookkeeper perpetrated the largest fraud in the state’s history by embezzling nearly $7 million over a six-year period. Because she had access to the company CFO’s signature stamp, she was able to forge his name on millions of dollars worth of checks. If you use a rubber stamp to sign checks, it’s vital to control who has access to it. Owners of companies that generate a large volume of checks and use stamps or check-signing machines should make sure that the devices are kept in a secure location and that only authorized users have access to it. Courts that have heard cases concerning banks paying out sums to forgers who used stolen rubber stamps and have ruled that if someone acquires a rubber stamp and uses it to forge checks, the burden is on the legitimate owner of the stamp to keep the stamp in a secure place. To recover for losses due to checks forged with a stamp, the rightful owner and user of the stamp must show the stamp was kept secure against unlawful use. The laws do vary by state, so check your state's laws regarding who has the burden to protect a signature stamp.
If you decide to invest in a check-signing machine, purchase one that has an internal meter that records the number of processed checks. Experts advise keeping a log and frequently reviewing it to make sure no unauthorized checks have been issued. Banks require signature cards for all authorized check signers. If an officer or other authorized employee leaves the company or is no longer responsible for signing checks, make sure to inform the bank of current authorized personnel. If you use a rubber stamp to endorse checks, set up a system through which anyone who uses the stamp must complete a log entry for each check so you can keep track of what checks are being written.
All checks must be signed on the back by the person who is named on the front of the check as the payee, i.e., the person to whom the check is made out and who is trying to cash the check. Signature stamps are permitted in lieu of an actual written signature, although signature stamps can lead to fraudulent activity.
Frances Katz is an attorney who writes about legal issues in business for a variety of publications including The New York Times, The Week, Paste, The Independent and The New York Times. She lives in Atlanta, Georgia.