You wouldn’t hand someone a “blank check” without an amount filled in (unless you’re the 1994 film by Rupert Wainwright*), so why would you hand a vendor a check without the name or memo field filled out?
Running a small business can be all-consuming but a few seconds spent well-documenting the checks you write can save you minutes and hours down the road.
Here are six reasons you should make sure you always fill out the “To” and “Memo” fields on your checks:
The vendors you are writing checks to are often subject to receiving a 1099 at the end of the year. These payments include items such as rent checks to your landlords, labor payments to subcontractors, and checks written to your CPA for filing your taxes. Since all of these payments are subject to receiving 1099s, you will need to have their correct contact information for filing.
Completing the memo field can provide a proper trail of for what and why you paid a particular vendor. This is especially important in the case of an audit. Auditors will want to have proper documentation as to why you paid someone as a contractor and not a W2, taxed, employee. Keeping well-documented receipts and check payments can help to easily provide the necessary information to your auditor, so that they can confirm the accuracy of your transactions.
The memo line is the most helpful section of a check, after it clears the bank and reaches your bookkeeper. One instance this can be extremely helpful is when paying for multiple invoices with one check. Noting the various invoice numbers in the check memo can help to easily match your payment to the appropriate bill(s). Not only will this make your bookkeeper jump for joy, but it will help to cut down on any questions we have for you at the end of the week. Having the memo line completed will give us the information we need to make sure we do not need to ask you for what a particular check was written.
Not only will your own bookkeeper love you, but so will the bookkeeper on the other side of the transaction. Filling in both the payee and memo lines will help to ensure prompt payment and proper allocation of funds. This can help to make sure there are no discrepancies between the payments you have made and what the vendor has on file (see the next point for more on this).
This is also a great means of auditing yourself and the vendor you are paying, if there is ever a question of a remaining balance. By denoting the exact purpose of payment in the memo line, your bookkeeper can easily trace back a list of payments and their associated bills to provide back to the vendor.
Not only will this help verify the payments you have made but it will also help your bookkeeper to be able to quickly create the report showing these payments. This saves you time and money as we easily document your payments and helps ensure you can spend more time with your clients, instead of worrying about bills have actually been paid, or are due.
Including the contact name can ensure consistency in your reporting. Try to always use proper names and business names so that contacts remain grouped together correctly. An example of this would be writing a check to Johnny Smith one time and to John Smith Jr the next time. This can cause confusion and create multiple contacts where there should only be one. This can be especially important, again, in the case of payments subject to 1099 rules. A payee is only subject to a 1099 when they have received payment of $600 or more. If you pay Johnny Smith $300 and John Smith Jr $300, you may not realize that this individual should receive a 1099 for having received $600 total, as they will show up on your reports as different contacts and not be picked up as having hit or surpassed the $600 threshold.
Most banks now include images of the checks you deposit on your monthly statement. However, if you would like to keep your own images of the checks you write before they clear, one great way to record this is by using the receipt management software Hubdoc. With Hubdoc, you can scan an image of the check along with the bill or receipt associated to it and send to your online account. This will keep the bill and check together in the same place.
This is another helpful solution to providing documentation in the case of an audit. Audits are the bane of the small business owner but having documentation stored and ready to go can help prevent sleepless nights and needless worry. Read more about receipt documentation via Hubdoc in our article here.
You should hope for the best but plan for the worst. Last but not least, handing over a check without the payee filled in is taking a risk. Should the check fall into the wrong hands, one can easily cash it to themselves. The vendor you wrote the check to may ask for a copy from the bank to help in their quest for funds. You want to make sure the contact is filled in to better prevent any alteration of the payee. Save yourself the headache of this ever happening to your business by filling in the contact name before the check leaves your hands.
*For those who aren’t familiar with this film, “Blank Check” follows the story of a child who finds himself in possession of a $1 million check.
Tags: small business
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