What Is An Outstanding Check? How To Handle Them

what is an outstanding check

When a check is written but not deposited, it might result in a slew of accounting mistakes. Though they are prone to generating problems, outstanding checks can be readily tracked and avoided by using simple accounting systems. In this post, we will explain an outstanding check, discuss how to conduct bank reconciliation with it, provide some recommendations for dealing with it, and present some effective techniques to avoid them.

What is an Outstanding Check?

An outstanding check is a check payment that the issuing entity has recorded but has not yet cleared its bank account as a debit from its cash balance. The outstanding check is used to derive the monthly bank reconciliation.

The time required for the postal service to deliver the check, as well as for the payee to deposit it, generally results in a multi-day delay between when a check is created and when it is submitted for payment. If the issuing entity postpones mailing the check for any reason, the check may also be delayed.

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, nor does a reconciling item in the issuing entity’s month-end bank reconciliation.

How Does an Outstanding Check Work?

A check is one method of payment for a transaction. A check is a financial instrument that instructs a bank to move money from the payor’s account to the payee’s account. When a check is deposited at a bank, the payee asks for monies from the payor’s bank. It then withdraws the funds from the payor’s account and transfers them to the payee’s bank. When the bank gets the required money, it deposits it into the payee’s account.

So, when the payee fails to cash or deposit a check, the check becomes outstanding. This means that it does not clear the payor’s bank account and does not appear on the monthly bill. Because the check is still outstanding, the payor is still liable for it. The check is reconciled against the payor’s records after the payee deposits it.

Checks that have been outstanding for an extended period of time cannot be cashed since they have become void. Some checks grow stale after 60 or 90 days, while others become void after six months.

Outstanding checks that remain unpaid for an extended length of time are referred to as stale checks.

What Is the Importance of Outstanding Checks?

Outstanding checks are dealt with by professional accountants and bookkeepers during reconciliation when they are balancing their ledgers as they prepare to close the books for the month.

When people balance their checkbooks, they must account for any outstanding checks. When you write a personal check, keep a check register and record the date, check number, payee, and amount. This is critical since your bank balance will be greater than your available funds until the check clears the bank. Making a note of it in your register immediately reminds you that those funds are designated for that check.

Checkbook balancing is similar to what professional accountants do during reconciliation. It’s a method of ensuring that you and your bank are on the same page regarding your account balance and accessible funds. It keeps track of outstanding checks. It can be difficult to balance a checkbook, so we’ve created a spreadsheet with step-by-step instructions to assist you.

If you do not properly account for outstanding checks, you risk wasting the money for the check on something else. This may result in a “bounced check,” and your bank may charge you a “non-sufficient funds” (NSF) fee. It could also harm your relationship with the vendor or person to whom you provided the check.

5 Tips For Dealing With Outstanding Checks

There are numerous approaches to resolving outstanding checks such that all parties interests are protected.

#1. Make contact with the payee.

A payee may have simply forgotten to deposit the check. In other instances, they may not have gotten it at all. Whatever the cause, you may be able to resolve your situation with an outstanding check by simply contacting the receiver.

#2. Maintain a record of any outstanding checks.

Whatever alternative methods you use, you should always keep a complete record of all your checks, especially outstanding ones. This will prevent you from spending more money than you appear to have in your account before any check clears.

#3. Make a new payment.

If the payee informs you that they did not get your original check, stop payment on it to confirm they are not being dishonest. You can reissue a fresh check or another form of payment, such as a direct money transfer from your account to theirs after you are certain that the payee is being truthful. The latter option ensures that you will not have another outstanding check in the future.

#4. Halt payments.

If you can’t reach the payee and it’s been months since you issued their check, it could be a good idea to halt payment. While you could wait for the check to get stale, it is better to pull out your checkbook and locate the check number for this payment. Contact your bank and inquire about alternatives for blocking payment on this specific check.

#5. Make the switch to online bill payment.

When compared to paper transactions, online banking is a considerably more efficient accounting system. It results in significantly better access to funds in a much shorter period of time. Many businesses use direct deposit, a type of online bill payment, to avoid having to deal with outstanding checks.

Example of an Outstanding Check in a Bank Reconciliation

When calculating the adjusted balance per bank during the bank reconciliation process, the total outstanding check is removed from the ending balance on the bank statement. (There is no need for a change to the company’s general ledger accounts. This is because the outstanding checks were recorded when they were issued.)

Stale checks are checks that have been outstanding for an extended length of time. Outstanding checks are considered unclaimed property in the United States, and the sums must be turned over to the company’s appropriate state after many years. Rather than allowing checks to get stale and then remitting the sums to a state government, businesses should contact the payees of any checks that have been outstanding for several months.

Risks and Outstanding Checks

If the payee does not immediately deposit the check, it becomes an outstanding check. This signifies that the money is still in the payor’s account. If the payor does not maintain track of his accounts, he may be unaware that the check has not been cashed. This may give the impression that there is more money accessible to spend in the account than there should be. If the payor spends part or all of the funds that should have been held in reserve to cover the check, and the check is later cleared, the account goes into the red. If this occurs, the bank will charge the payor an overdraft or non-sufficient funds (NSF) fee, unless the account has overdraft protection.

How to Avoid an Outstanding Check

Outstanding checks are a common cause of bank overdrafts. Maintaining a balanced checkbook is one strategy to avoid this situation. If the payee decides to cash the check later, this can assist avoid any unneeded NSFs.

You can also phone or write the payee to notify them that the check is still outstanding. This could persuade them to deposit or cash the check. If they haven’t received the payment, this may persuade them to contact you in order for you to reissue the check.

With banking activity becoming increasingly computerized, using the checking account’s online bill pay option is another approach to avoid writing a check and forgetting about it. This should offer real-time data on the overall dollar amount of checks outstanding as well as the total dollar balance in the account.

Outstanding Commercial Checks

When a company writes a check, the amount is deducted from the relevant general ledger cash account. If the monies have not been withdrawn or received by the payee, the balance in the company’s bank account will be overestimated and will be greater than the general ledger item. To reconcile the bank statement so that the company’s cash account in its financial statements matches the cash in its bank account, the company must alter its “balance per bank,” which refers to the bank statement’s ending cash balance.

Because businesses are required to follow unclaimed property rules, any checks that have been outstanding for an extended period of time must be repaid to the state as unclaimed property.

Should You Make Another check?

They may require another check after speaking with your payee. Ask the payee to return the old check before sending the new one to prevent the potential of both checks being deposited, either intentionally or unintentionally.

If the original check was lost or destroyed, it may be necessary to issue a new check without receiving the old one back. This creates a difficult scenario because two checks may be circulating for a single payment. If the old check is deposited, your bank may honor it, and you may end up paying twice.

Fortunately, banks are not required by law to honor checks written more than six months ago.

If the old check isn’t more than six months old, or if you want an extra layer of security, two ways can help.

Stop Payments

If the amount is substantial enough to pose issues, or if you have doubts about the payee, contact your bank to suspend payment on the previous check.

This method has some drawbacks: Stop payment requests are costly, and they are only valid for six months. If you give your stop payment order orally rather than in writing, it is only valid for two weeks. If you have persistent concerns about a past-due check, you may need to make outstanding requests.

Seek Agreement

Request that the payee signs a document pledging not to deposit both checks. This will not prohibit banks from processing two deposits, but it will give a handy paper trail if one of the transactions is disputed.

Outstanding Check That You Received

If you received a check and it is still outstanding after six months, contact the check issuer and ask for a replacement. As previously stated, you may be required to return the original check or sign paperwork showing that the check has been lost or destroyed. You may also be required to make a vow not to deposit both checks. If you are unable to locate the issuer, you may be able to claim assets through your state’s abandoned property program.

Outstanding Check FAQs

What are outstanding checks examples?

The bank statement shows a $100 service charge for keeping the account open. A $20 interest income is shown on the bank statement. ABC issued $50,000 checks that have yet to be cleared by the bank.

How long is an outstanding check?

Checks for personal, business, and payroll purposes are valid for 6 months (180 days). Some firms pre-print “void after 90 days” on their checks. Most banks will honor those checks for up to 180 days, and the pre-printed text is intended to urge individuals to deposit or paychecks as quickly as possible.

Where are outstanding checks on a bank statement?

The checks do not appear on the bank statement. Outstanding checks, on the other hand, are documented in your check register. As soon as you write a check, you record the money you pay. Your bank statement must be updated to reflect the outstanding checks.

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