Outstanding Check: Definition, Risks, and How to Avoid

What is an outstanding check?

An outstanding check is a check that has been written by the payer but has not yet been cashed or deposited by the payee. Until the payee presents the check and the bank clears it, the check remains a liability on the issuer’s records and is not reflected as a withdrawal on the bank statement.

Checks that sit unpresented for long periods are often called stale-dated checks; banks may treat checks as stale after 60–90 days or refuse to honor them after six months, depending on policy.

How it works

• The issuer writes a check authorizing their bank to transfer funds to the payee.
• The payee deposits or cashes the check, triggering the payor’s bank to withdraw and transfer funds.
• If the payee does not present the check, the withdrawal never occurs and the check remains outstanding.
• Outstanding checks are a timing difference between a company’s or individual’s records and the bank statement.

Risks of outstanding checks

• Overdrafts/NSF: If funds are spent before a pending check clears, the account can be overdrawn when the check is finally presented.
• Fraud or alteration: Lost or stolen checks can be altered (payee or amount changed) if not promptly deposited or protected.
• Accounting discrepancies: Outstanding checks complicate reconciliation and financial reporting, potentially causing errors during audits.
• Cash-flow ambiguity: Large volumes of outstanding checks make it hard to know true available cash.
• Unclaimed property requirements: Very old outstanding checks may be required to be turned over to the state as unclaimed property.

Benefits and practical uses

• Cash float: The issuer retains funds longer until the payee deposits the check.
• Paper trail: Checks provide documentation (date, amount, payee) useful for recordkeeping.
• Timing flexibility: Delays in deposit can occasionally help short-term cash management for the issuer.

Business considerations

• Reconciliation: Businesses should deduct outstanding checks from the bank balance when reconciling to their general ledger so book balances match bank balances.
• Unclaimed property: Companies must monitor long-outstanding checks and comply with state unclaimed property laws, which may require remitting funds after a specified dormancy period.

Communicating with payees

• Notify payees when checks are issued and provide expected timelines.
• Confirm correct mailing addresses to reduce lost checks.
• Keep records of all communications (emails, calls, letters) about outstanding payments.
• If a payee reports not receiving a payment, verify before reissuing a check—void and reissue as appropriate.

How to reconcile outstanding checks

1. List checks issued that haven’t cleared.
2. Compare that list to the bank statement’s cleared items.
3. Subtract outstanding checks from the bank’s ending balance on the reconciliation worksheet.
4. Investigate any discrepancies and adjust records or follow up with payees as needed.

How long before a check becomes stale?

Policies vary. Some banks consider checks stale after 60–90 days; many standard policies treat checks older than six months as void. If a check is stale-dated, the payee should contact the issuer for a replacement.

Best practices to avoid problems

• Reconcile bank statements regularly (monthly).
• Maintain an accurate check register or digital records of issued checks.
• Use online bill pay or electronic transfers when possible to reduce reliance on paper checks.
• Promptly follow up with payees if checks remain uncashed.
• Void and reissue lost or uncashed checks after verification.
• Secure check stock and write checks clearly (use permanent ink, avoid blank spaces).
• Endorse “For deposit only” on checks when possible and instruct payees to deposit promptly.

Common questions

• What happens if a check is outstanding too long?
  The bank may refuse to honor a stale-dated check; the payee will need to request a new check from the issuer.
• What are the consequences of a bounced (NSF) check?
  Banks may charge fees, and the issuer may face damaged relationships, collection attempts, or legal action.
• How should a business handle very old outstanding checks?
  Review state unclaimed property rules and remit funds if required, after attempting to contact the payee.

Conclusion

Outstanding checks are a routine part of paper-based payments but create timing, fraud, and reconciliation risks. Regular reconciliation, timely communication with payees, use of electronic payments where appropriate, and good recordkeeping minimize those risks and help ensure accurate cash management.