Outstanding Check: Definition, Risks, and Ways to Avoid

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what does it mean when a check is outstanding

If a payee receives a check and does not present it for payment at once, there is a risk that the payer will close the bank account on which the check was drawn. The payee’s bank will then reject the check due to not sufficient funds, and will charge the payee a fee. In this situation, the payee will https://www.bookstime.com/ need to ask the payer for a replacement payment from a valid checking account, and may demand compensation for the NSF fee. Qualifying accounts can even access their paycheck up to two days early. Like business checks, personal checks are generally considered invalid after six months (180 days).

Outstanding Checks vs. Stale Checks

An outstanding check is any check written on a bank account that hasn’t yet been cashed or deposited and cleared. Best practices for managing and clearing outstanding checks include regular bank statement reconciliation, promptly voiding or canceling unused checks, and maintaining proper record-keeping. Also, always maintain in communication with payees about payments not fully processed. 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 If the funds have not been withdrawn or cashed by the payee, the company’s bank account will be overstated and have a larger balance than the general ledger entry. 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.

  • Until it has been deposited and cleared, outstanding checks are liabilities on the payor’s balance sheet.
  • As such, there is no incentive to wish for an outstanding check to permanently never be cashed as the payment is subsequently owed to the government for holding.
  • An outstanding check remains a liability of the payer until such time as the payee presents the check for payment, which then eliminates the liability.
  • To make funds available as quickly as possible, deposit checks promptly.
  • However, it’s not always clear whether or when the money arrives.

The Risk of Stale Checks and the Need for Stop Payments

•   Keeping a balanced checkbook goes a long way toward preventing a check from being forgotten. •   Mail and delivery problems that interfere with the check getting to its recipient (this can involve having an old address on file). Businesses that mishandle these kinds of accounting situations are effectively in violation of the law. The GlobalBanks editorial outstanding checks team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

what does it mean when a check is outstanding

What is the difference between outstanding balance and remaining balance?

Card issuers assign specific credit limits (spending limits) on your cards. Your outstanding balance helps determine how much much credit (money left to spend) you have available. To find out how much you have left, simply subtract your outstanding balance from your credit limit. Don’t forget to include any charges that haven’t shown up on your credit card account yet. It’s wise to be conservative about checks when you don’t have complete confidence in the source. With checks written from major banks, you’ll often (but not always) find out within a few days if there’s a problem.

what does it mean when a check is outstanding

Outstanding Deposits

As a result, your available balance may not reflect the actual spendable cash, leading to a misinterpretation of your financial standing. •   If you wrote the check, calling a payee to remind them that a check is outstanding is a wise tactic. •   Outstanding checks also become stale and worthless after a certain period. ◦   Be sure to tell them that you issued a stop payment on the original check. You are now leaving the SoFi website and entering a third-party website. SoFi has no control over the content, products or services offered nor the security or privacy of information transmitted to others via their website.

what does it mean when a check is outstanding

In most cases, the recipient (or payee) submits the check to their bank, and the bank collects funds from the check writer’s bank. Delayed action can result in the check becoming stale dated, usually after six months, depending upon the bank. Keep track of it and contact the payee if you suspect they’ve forgotten or misplaced the check. If you’ve received an outstanding check, deposit or cash it promptly. Since the bank balance does not yet reflect the check amount, it can present a misleading picture of your actual financial situation. Fortunately, banks don’t have a legal obligation to honor checks written more than six months in the past.

Is an outstanding check a debit or credit?

What Are Some Best Practices for Managing and Clearing Outstanding Checks?

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