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Third Party Checks
A third party check is one not issued directly to the payee. A third-party check is one that is payable to someone other than the drawer who in turn transfers the check to a third party by endorsing the back of the check by writing “pay to the order of” to name a new holder. This endorsement transfers the instrument to a new holder who has the same legal rights as the endorser.
A third-party check might be issued to a customer, endorsed by the customer, and tendered as payment to a creditor company for application to the customer's account. Many banks refuse third-party checks because they pose a significantly higher risk of being returned unpaid.
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