This article was submitted to Credit-to-Cash Advisor as an addendum to the January 2005 Q&A on the same topic. This information applies in particular to states such as MD, Wash. DC and VA where UCC endorsements are not valid.

Thank you, Bente Selby, Credit Manager, Printing & Graphic Communications Association.

Customers will sometimes send checks that contain a "restrictive endorsement" on the back or in the memo portion. Restrictive endorsements include language such as "in full payment of account", "full and final settlement", "final payment", or other language denoting that depositing the check will operate as a release of all claims against the customer. The exact wording of the restrictive language is not significant. However, depositing a check bearing restrictive language may result in a loss of your right to pursue the customer for any additional money.

You cannot cancel the effect of restrictive language merely by crossing it out or obliterating it. Courts in the Washington metropolitan area have also held that creditors cannot trump the customer’s restrictive language by placing "reservation of rights" language in the endorsement portion of the check, such as "under protest", "without prejudice", or "with reservation of rights."

The law may vary from state to state. You should consult an attorney if you receive a check from an out-of-state customer to determine handling of these kinds of payments.

A check bearing a warning endorsement is a time bomb. Turning down any payment, especially on an account that is severely past due, is difficult to do. However, any customer who goes to the trouble of placing a restrictive endorsement on a check probably did so for a reason. By depositing the check, it is likely that you will either have to write off the remainder of the account or expend additional legal fees litigating whether this is an "accord and satisfaction."

No check bearing restrictive language should be accepted unless: (1) It is a significant portion of the total account, or (2) the account is otherwise going to be written off.

If a decision is made not to deposit a check, it should be immediately returned to the customer. Some courts have ruled that a creditor receiving a check purporting to be payment in full must return it promptly or risk having a presumption arise that the creditor’s retention of the check is in satisfaction of the entire obligation.

The period of retention is the most significant factor in determining whether an accord and satisfaction has resulted. Therefore, if you are going to hold on to a check while negotiating further payments, make sure to put in writing that you are merely holding the check for a short period in order to attempt to negotiate an amicable resolution. Once negotiations have failed, return the check immediately. If you use a lockbox for customer payments, you should conspicuously designate in writing an office outside of the normal check-processing unit to whose attention restrictively endorsed checks must be sent. This designation could be made, for example, in bold on the bottom of every invoice.

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Disclaimer: This information is provided by ABC-Amega Inc. for informational purposes only and is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.

ABC-Amega Inc. provides 1st and 3rd party commercial collection services since 1929 and collecting in more than 200 countries worldwide. For further information, contact info@abc-amega.com.