Table of Contents
Outstanding checks are common for business owners and individuals. They are simply checks that have not yet been cashed or deposited at a financial institution. Since they are still outstanding, the payor (the entity that issued the check) should keep enough cash in their account so they can pay all outstanding checks. The payee, or recipient, should take steps to deposit outstanding checks as quickly as possible to avoid the risk of their becoming void.
Understanding what outstanding checks are can help you better manage your financial life and become a savvier consumer. Read on to find out:
• How outstanding checks work
• What to do with old checks
• What risks are associated with outstanding checks
Key Points
• An outstanding check is a check that a payor has issued but that the payee has not yet cashed or deposited.
• An outstanding check typically expires after six months, although this time frame could be shorter, such as 60 or 90 days.
• If the outstanding check is less than six months old, you can contact the payee to find out why they haven’t cashed the check. If the check is more than six months old, you can issue a stop payment on it.
• The risks of an outstanding check include that it can bounce when the payee tries to deposit it, it can become stale after a certain period, and it can cause accounting issues for the payor.
• If you want to avoid outstanding checks, keep a balanced checkbook, maintain a tidy desk so you don’t forget about checks, or use an online bill pay service instead.
What Is an Outstanding Check?
Typically, a payor writes a check to a payee, who then deposits the check. Funds are transferred into the payee’s account this way. Whether you have a traditional or an online bank account, you can typically make a mobile check deposit with just a few clicks on your phone.
But with outstanding checks, things don’t follow this flow. An outstanding check is a check that has been issued but not yet cashed or deposited. It is considered a liability for the issuer until it is redeemed. If outstanding checks aren’t redeemed, they can become void after a certain timeframe, often six months.
An outstanding check can also mean that it was deposited at a bank but is still going through the process of clearing. This means it is en route to becoming available funds in the payee’s bank account, but it’s not quite there yet.
Until they are deposited and cleared, outstanding checks are liabilities on the payor’s balance sheet. This can be a challenge for both consumers and small business owners because enough cash must be kept in the account drawn upon to cover outstanding checks until they are cashed. Outstanding checks can complicate accounting, as the assumption is that a check gets issued, deposited, and paid. But if it hasn’t been cashed yet, it can throw off bookkeeping.
How Do Outstanding Checks Work?
Once you write a check or sign a check over to someone, the onus is on them to deposit the check. But sometimes, people don’t make a beeline for the bank or use their banking app right away. How often have you received a check, set it aside on your desk, and nearly forgotten about it? It’s not just you.
Business owners know that outstanding checks might take weeks or months to get cashed. Sometimes, checks wind up hanging around uncashed for a while. Or they even get lost.
Typically, though, check cashing is pretty straightforward. A check is simply a document that authorizes a transfer of money from a payor’s account to a payee’s account. When the payee deposits an outstanding check at a bank, a request to move money is initiated. Funds then move between the two accounts. A bank deposits the cash into the recipient’s account once it receives the money from the payor’s account. (Cashing a check without a bank account is more challenging, but you still have options to do this.)
An outstanding check is when the payee neglects to cash or deposit a check (or the check gets lost). This means that the check does not clear and does not appear on a month-end bank statement. Outstanding checks are a liability for the payee, but once deposited, they are reconciled against the recipient’s account.
A Check I Wrote to Someone Is Outstanding: Now What?
If you wrote a check that remains outstanding for more than a few weeks, there are steps you can take to resolve the situation. First, know that outstanding checks expire, often after six months, but sometimes in as little as 30 or 60 days. Knowing how to stop payment on a check is also useful if you wish to void an outstanding check (more on this below).
Here are more details on managing outstanding checks.
If the Check Is Less Than Six Months Old
• Track the value of outstanding checks in your account register.
• Reach out to the payee and ask what happened to the outstanding check.
If the Check Is Older Than Six Months
• Reach out to the bank to confirm its policy on old or expired checks.
• Issue a stop payment on the outstanding check.
◦ You might have to visit a branch location to make the request, and there could be a fee involved.
◦ Working with the bank to ensure a stale check gets deposited might require time and effort.
◦ Once voided, be sure to mark the old check as voided in your checkbook. Checkbooks can be useful when tracking old checks.
• Contact the payee about the situation.
◦ Be sure to tell them that you issued a stop payment on the original check.
◦ Work with them to determine another way to pay them.
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Do I Need to Write a New Check?
When dealing with outstanding checks, you may wonder if there’s a limit on how long someone has to cash a check. There often is. Knowing when a check expires is an initial step before deciding whether to write a new check. If a check has been outstanding for less than six months, you generally don’t want to write a new one. Instead, contact the payee to find out more about the situation, which may also serve as a friendly reminder to have them deposit it. If more than six months have passed, that check may well be expired and considered void. A new check would have to be written, or another method of payment could be used.
If you do write a new check, it may be safest to request that the old one be returned or ask for proof that it’s been voided. Otherwise, in rare cases, you might wind up with both the old (outstanding) check and the new check being cashed, leaving you with a financial loss.
A Check Issued to Me Is Outstanding: Now What?
You’ll want to take all reasonable steps to cash or deposit outstanding checks. If you wait too long, the check can become stale-dated and no longer be considered valid. If it’s been more than six months, contact the issuer to resolve the matter. If the sticking point is that you don’t have an account to deposit the check in, you can easily open a checking account. It can take just minutes to do this online.
Risks of Outstanding Checks
There are many risks to outstanding checks.
• One major risk is that it bounces by the time an attempt is made to deposit it. This is why knowing what to do if a check bounces is important.
• You may wind up being charged overdraft fees and non-sufficient funds (NSF) fees if the outstanding check is deposited and then bounces.
• Outstanding checks also become stale and worthless after a certain period.
• In business bank accounts, outstanding checks can cause hiccups in accounting if not tracked well.
Reasons Why Checks Aren’t Cashed
There are a number of reasons why checks don’t get cashed and wind up being outstanding, including:
• The payee just not getting around to depositing it
• The payee simply forgetting about the check or not keeping tabs on it properly.
• The payee misplacing the check or even throwing it away
• Mail and delivery problems that interfere with the check getting to its recipient (this can include having an old address on file)
Avoiding Outstanding Checks
Although there are many risks with outstanding checks, there are simple steps you can take to avoid them.
• Keeping a balanced checkbook goes a long way toward preventing a check from being forgotten.
• Maintaining a tidy desk and filing cabinet for important documents such as checks can help you deposit funds promptly.
• If you wrote the check, calling a payee to remind them that the check is outstanding is a wise tactic.
• Using online bill pay services can help you dodge the headaches that can come with paper checks.
The Takeaway
It’s important to know what an outstanding check is and the potential pitfalls that go with it. Many checks remain outstanding, which can pose risks to both the person holding the check and the entity that issued it. Fortunately, with today’s technology and mobile banking capabilities, it’s easier and faster than ever to deposit checks.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is an outstanding check bad?
Outstanding checks are not bad per se, but it’s generally wise to promptly deposit or cash checks so that they don’t expire. Checks that remain outstanding beyond a certain time frame could become void, so if you hold such a check, you might be out of luck if you then wish to deposit it. Also, outstanding checks can make it hard to determine an account’s available balance, which can lead to bounced checks and overdraft charges.
How do you handle an outstanding check?
If you wrote a check and it’s still outstanding, consider contacting the recipient to confirm that they received it. That might give the payee a nudge to deposit it. If you possess an outstanding check, it’s good to deposit it as soon as possible to avoid having it go stale.
Is an outstanding check a debit or credit?
An outstanding check represents a payment that has been written but not yet cleared by the bank. In a double-entry accounting system, an outstanding check is considered a credit for the check writer, since credits record outgoing money. The funds have been earmarked to be deducted from their bank account, even though the actual cash hasn’t been withdrawn yet. For the recipient, the outstanding check is considered a debit, since debits record incoming money — they are awaiting the receipt of funds that have been promised through the check.
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