Legal Definitions - collection indorsement

A collection indorsement is a type of indorsement that includes a condition or language restricting further negotiation of a negotiable instrument. It is also known as a restrictive indorsement. The purpose of a collection indorsement is to prevent thieves and embezzlers from cashing checks.

For example, a check may have a collection indorsement that says "for deposit only." This means that the check can only be deposited into the account of the person named on the check and cannot be cashed by anyone else.

Another example of a collection indorsement is "pay to the order of XYZ Bank." This means that the check can only be deposited into the account of XYZ Bank and cannot be cashed by anyone else.

These examples illustrate how a collection indorsement restricts further negotiation of a negotiable instrument and ensures that it can only be used for its intended purpose.