Outstanding Check: Definition, Risks, and Ways to Avoid

outstanding official checks

The payment goes on the general ledger, but businesses must make adjustments during reconciliation, and they may need to reissue stale checks. Businesses must track outstanding items to avoid breaking unclaimed property laws. If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state. This typically occurs after a few years, but timetables vary from state to state.

How can I avoid outstanding checks?

This presents a thorny situation—two checks might be circulating for a single payment. If the old check is deposited, your bank might honor it, and you could consequently end up paying double. If you write a check and the money never leaves your account, you may develop the false belief you can spend those funds, but the money still belongs to the payee. If the payee finally https://www.bookstime.com/ deposits the check after months of delay, you risk overdrawing your account and bouncing the check. When a business writes a check, it deducts the amount from the appropriate general ledger cash account. If the funds have not been withdrawn or cashed by the payee, the company’s bank account will be overstated and have a larger balance than the general ledger entry.

outstanding official checks

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  • Understanding terms like outstanding checks is important for money management.
  • †Subject to minimum balance requirements and identity verification.
  • The payee will find the money didn’t arrive in their account, which could, in turn, even cause them to overdraft their own account.
  • The payor has no control over when the payee will cash or deposit the check.

If they have the check, try to persuade them to deposit the check. If that doesn’t work, send a letter informing payees the check has not been presented and officially request they notify you if they have not received the payment. Escheated accounts outstanding checks are known as dormant, abandoned, or unclaimed. Dormant, abandoned, and unclaimed accounts are ones that have no activity for a specific period of time. Additionally, outstanding checks can affect your budgeting and financial planning.

  • Anytime you make this request, mark it in your accounting software or ledger as «canceled.»  Doing so allows this money to be made available again.
  • Bonnie Honeycutt is a New York Times best-selling editor who also works as a freelance journalist, ghost writer, and writing coach.
  • This means the check does not clear and does not show on a month-end bank statement.
  • In contrast, an outstanding check remains in financial limbo.
  • It is imperative for an issuer to provide payees with timely communication regarding the issuance of a check as well as any pertinent details as soon as possible.

Personal Checks vs. Company-Printed Checks

outstanding official checks

Forgotten outstanding checks are a common source of bank overdrafts. One way to avoid this occurrence is to maintain a balanced checkbook. This can help prevent any unnecessary NSFs if the payee decides to cash the check at a later date. Even if banks are only legally required to honor checks for a six-month period, it is usually a good idea to avoid any potential problems by depositing checks when you receive them.

outstanding official checks

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. If you had property that has been escheated, you can reclaim your property by applying to your state. Teach money lessons at home with Greenlight’s $mart Parent newsletter. Money tips, insights, and fun family trivia — delivered every month.

  • 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.
  • If a check is outstanding for less than six months, you generally don’t want to write a new one.
  • If you forget about the outstanding check and spend money based on the present bank balance, it can lead to financial miscalculations.
  • Check the fine print on the back of your money order for specific terms.
  • It’s always best to contact the issuer before trying to cash a stale or outstanding check.

What does an Outstanding Check Mean on a Bank Statement?

One of the ways of making payment for a transaction is by check. A check is a financial instrument that authorizes a bank to transfer funds from the payor’s account to the payee’s account. When the payee deposits the check at a bank, it requests the funds from the payor’s bank, which, in turn, withdraws the amount from the payor’s account and transfers it to the payee’s bank. When the bank receives the full amount requested, it deposits it into the payee’s account. You can also consider digital money transfers to avoid the issue of paper checks entirely. Tools like digital banking apps, online money transfers, and direct deposits offer instant, effortless transactions in real-time.

outstanding official checks

What Happens If a Check Is Never Cashed?

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