Outstanding Check: Definition, Risks, and Ways To Avoid

An outstanding check represents a check that hasn’t been cashed or deposited by the recipient or payee. One state is that the payee has the check but hasn’t deposited or cashed it. The other state is that the check has not yet reached the recipient and is still in the payor’s bank-clearing cycle.An outstanding check is a liability for the person (i.e., payor) who has written the check. They must make sure that enough money remains in their checking account to cover the check until it is paid. The payee may cash the check immediately or might hold onto it for months.

• If the outstanding check is less than six months old, you should not write another check.
• Recording it in your register right away reminds you that those funds are earmarked for that check.
• If an outstanding check has not yet cleared the bank by the end of the month, it does not appear on the month-end bank statement, and so is a reconciling item in the month-end bank reconciliation prepared by the issuing entity.
• One way to avoid this occurrence is to maintain a balanced checkbook.
• This period can range from 60 days to six months.Sometimes a payee forgets about the check or loses it without notifying the payor.

The payor must be sure to keep enough money in the account to cover the amount of the outstanding check until it is cashed, which could take weeks or sometimes even months. Balancing your checkbook is akin to what professional accountants do during reconciliation. It’s a way of making sure that you and your bank agree about your account balance and available funds. It can be tricky to balance a checkbook and we have a worksheet with step-by-step instructions to help you.

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Checks that remain uncashed for long periods of time are called stale checks. This period can range from 60 days to six months.Sometimes a payee forgets about the check or loses it without notifying the payor. The payor has no control over when the payee will cash or deposit the check. The only thing the payor can do, for a fee, is stop payment on the check. The payee cannot cash or deposit the check once a stop payment has been issued.The payer’s bank has no way of knowing that a check has been written until the payee deposits or cashes the check.

• Some checks become stale if dated after 60 or 90 days, while others become void after six months.
• When the bank receives the full amount requested, it deposits it into the payee’s account.
• Checks that are outstanding for a long period of time are known as stale checks.

If you want a basic checking account with no monthly maintenance fee, or an interest-earning checking account, we’ve got the options that are right for you. The amount of outstanding checks is sometimes referred to as float. As businesses have to abide by the unclaimed property laws, any checks that have been outstanding for a long time must be remitted to the state as unclaimed property. If you wrote a check and it has been outstanding for a while, you may be wondering, “Do checks expire?

Outstanding Check

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It may also damage your relationship with the vendor or person you gave the check to. Individuals need to account for outstanding checks when they balance their checkbooks. When you write a personal check, you should record the date, check number, payee, and amount in your check register. This is very important because your bank balance will be higher than your available funds until the check clears the bank. Recording it in your register right away reminds you that those funds are earmarked for that check.

Outstanding Check: Definition, Risks, and Ways To Avoid

An outstanding check is a check payment that is written by someone but has not been cashed or deposited by the payee. The payor is the entity who writes the check, while the payee is the person or institution to whom it is written. An outstanding check also refers to a check that has been presented to the bank but is still in the bank’s check-clearing cycle. If an outstanding check has not yet cleared the bank https://bookkeeping-reviews.com/outstanding-check-definition/ by the end of the month, it does not appear on the month-end bank statement, and so is a reconciling item in the month-end bank reconciliation prepared by the issuing entity. If you don’t account for outstanding checks properly, then you risk spending the money for the check on something else. This could result in a “bounced check”, and you may be charged a “non-sufficient funds” (NSF) fee by your bank.

• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
• In the bank reconciliation, outstanding checks are deducted from the balance per bank.
• The check may also be delayed if the issuing entity puts off mailing the check for any reason.
• If they can’t get to the bank, you may want to ask them to return the check to you and you can pay them using another method.
• The payee cannot cash or deposit the check once a stop payment has been issued.The payer’s bank has no way of knowing that a check has been written until the payee deposits or cashes the check.

Besides the liability it creates, the payor may forget that they wrote the check and spend money allocated for the check. When the payee cashes the check, and their bank tries to pull funds from the payor’s account, the payor will get hit with an overdraft or non-sufficient funds (NSF) fee. The payor can void these fees using overdraft protection on their checking account.

Risks and Outstanding Checks

Checks that remain outstanding for long periods of time cannot be cashed as they become void. Some checks become stale if dated after 60 or 90 days, while others become void after six months. If the outstanding check is less than six months old, you should not write another check. The original check is still valid, and the payee can cash or deposit it.