Recently Rich Hill received some questions concerning what a joint
check agreement was and how it worked. In response to those inquiries
he asked if I would write a column about joint check agreements.
A joint check is a simple device. It is a check made out jointly to
parties. Widely used in the construction industry, it is not,
limited to that industry and can be used in many situations.
Consider the typical situation of a supplier selling to the
customer. The customer (vendor) secures an order from their
customer (end user) whose credit reputation is excellent. The problem
is the amount of the order exceeds the vendors credit capacity. The
supplier knows that the end user has the ability to pay, and will, but
there is a chance their customer (vendor) will use the proceeds from
this sale to pay other obligations not related to this transaction.
To protect against this, the supplier can seek a joint check from
the end user. The end user then issues a check made payable to both
the vendor and the supplier in an amount equal to what the vendor is
owed for the order. The check should then be signed by the vendor and
given to the supplier for deposit. Both signatures are needed before
the check can be deposited.
The supplier then issues a check back to their customer (vendor)
for the difference of what was paid by the end user and what the
vendor owed the supplier for the product. In this way the supplier has
reduced the risk of providing their marginal customer a large order
and at the same time not lost a sale.
The Agreement is a contract between all three parties (supplier,
vendor and end user) and should contain all the information concerning
what is expected of all the parties and the consequences and remedies
should the Agreement not be fulfilled. The Agreement should be signed
by all of the parties prior to the supplier releasing the order.
Generic joint check agreements can be obtained from several sources
including NACM and the Associated General Contractors. They can also
be found in the major office supply outlets or you can request your
attorney to draft an Agreement.
Regardless, before using any joint check agreement, it should be
reviewed by your law department or legal counsel to make certain that
it meets all the necessary requirements and does not contain language
that may constitute a breech of the Agreement.
THE PRECEDING INFORMATION HAS BEEN PROVIDED FOR GENERAL INFORMATION
PURPOSES AND HAS NOT BEEN OFFERED AS LEGAL ADVICE. FOR LEGAL ADVICE
CONSULT YOUR LAW DEPARTMENT OR LEGAL COUNSEL.
I wish you well.