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Simple English definitions for legal terms
collecting bank
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A quick definition of collecting bank:
A collecting bank is a type of bank that handles the process of collecting money from a check. It is not the bank where the check was deposited or the bank that will pay the check, but rather the bank that helps move the money from one bank to another. Think of it like a middleman that helps make sure the money gets to the right place.
A more thorough explanation:
A collecting bank is a financial institution that handles the collection of a check or other negotiable instrument on behalf of the payee. It is any bank that is not the payor bank or the depository bank. In the check-collection process, the collecting bank is responsible for presenting the check to the payor bank and collecting the funds.
For example, if you receive a check from someone, you can deposit it into your bank account. Your bank becomes the collecting bank and will present the check to the payor bank for payment. Once the funds are collected, your bank will credit your account.
Another example is when a business receives payments from customers through checks. The business will deposit the checks into their bank account, and the bank becomes the collecting bank. The bank will present the checks to the payor banks and collect the funds on behalf of the business.