We will outline what are outstanding checks and how to address the issues with them. Whether you are a provider or user of this type of payment option, this article can come in handy.
- Outstanding checks refer to checks that the payees have received but they never been cashed out.
- Checks have an expiration date, so it is essential to track what happened to them after they are issued.
- If the check is cashed out but money isn’t deducted from the bank account balance, it is still considered outstanding.
- Whether you are a provider or receiver of checks, it is important to keep track of what happens with them.
What Are Outstanding Checks?
An outstanding check is a check written out to a payee that hasn’t been cashed in or deposited.
Check options have become a popular and safe way of handling payments, so it is good to know that when you haven’t cashed or deposited it, the check becomes outstanding.
Also, the term ”outstanding” refers to a check that the bank is still processing which means money is spent, but the bank isn’t deducted the money sum yet from the account balance.
Whether you are a business entity or an individual, it is important to track all past payments. Before the outstanding check clears the bank, it can seem that available funds on the bank account are higher than that is the case in reality.
Why Are Outstanding Checks a Problem?
- The payer or drawer has to maintain the sum mentioned in the check in the relevant bank account until it is cashed.
- If all funds are withdrawn from the bank account, and the payee cashes in the check afterward, the bank will charge the payer an overdraft or a non-sufficient funds fee (NSF).
- Outstanding checks can lead to problems balancing the payee’s checkbook by showing a higher balance than expected.
- If they’re not tracked, these types of payments can create serious accounting problems. Incorrect account balances caused by outstanding checks have to be constantly corrected.
- Businesses or individuals dealing with these types of checks have to pay the outstanding sum to the state they’re based in. This is because of unclaimed property laws. Even if you pay the state, payees can still request that you write them a new check, leading to you having to make payments twice.
What To Do With Outstanding Checks
Contact the payee
Payees can simply forget to cash in or deposit their checks. You can try contacting the payee in concern and encourage them to cash in or deposit it before it expires.
If the check has expired, the payee might request a new one. Make sure to request that the original one is sent back to you to avoid the payee cashing the check twice, either accidentally or on purpose.
Some businesses have ‘void after 90 days’ printed on their checks. Most of these are still going to be valid for the typical 180 days. The phrase is printed to encourage payees to cash them as soon as possible.
If you are a business owner, you can use this practice so that your business avoids outstanding checks.
In rare cases, checks may be lost in the mail, resulting in the payee not receiving them. In this scenario, the best line of action is to inform the bank to stop that particular check and write a new one to your payee. You can encourage the payee to cash in or deposit the check as soon as possible.
What if the payee can’t be contacted?
To avoid paying the outstanding sum to the state because of unclaimed property laws, the business can take a certain sum of money and deposit it in a bank account.
The payer or drawer should stop the check by contacting the bank. The payer or drawer can use the money in the bank account to pay the payee if they contact you in the future or if you can get in contact with them.
Whether you are a receiver or a provider of the check payment option, it is good to know what outstanding checks are. Business entities that provide this type of payment must track all their checks because they can have a negative impact on the bank account balance if the business doesn’t handle them properly.