Outstanding Checks: 5 Tips for Handling Outstanding Checks

Outstanding checks are uncashed or undeposited checks. Checks are outstanding when the payer has written them, but the payee has not yet cashed or deposited them. The payer’s account balance will not change until this occurs. Outstanding checks can cause all sorts of problems in bookkeeping, business accounting, and banking.

Check cashing requires the involvement of three parties: a payor, a payee, and a banking institution or institutions. When a payer issues a check, that payer’s bank is unaware that the payee effectively has a certificate for the payer’s money. It’s only once the payee deposits the payer’s check at their bank that both parties’ banks can get to work at facilitating the financial transaction. Prior to this moment, the check is outstanding.

The payee’s bank will debit the payer’s bank, leading the payer’s bank to send the payer’s money to the payee’s bank. Once they receive these funds from the payer’s bank, they will deposit them directly in the payee’s account. Until this point, the payer’s account balance will not change.

Banks work diligently to ensure there are no discrepancies in their accounting. During the bank reconciliation process, they will ensure the bank balance sheet takes any outstanding checks into account that payees have yet to deposit. Still, it’s generally up to the individual account holder to keep track of the money leaving or coming into their bank account.

Stale checks (or stale-dated checks) are old checks that a bank will no longer consider valid after a specific period of time elapses. Some banks might consider checks stale by the end of the month; others will allow a grace period of two or three months, or even six months. Outstanding checks often become stale checks, but the payer should not assume that waiting for a check to become stale will ensure their funds do not transfer.

Outstanding checks can cause problems in a variety of different circumstances. Here are just three unfortunate possibilities:

1. 1. Inaccurate financial statements: Perhaps the simplest reason outstanding checks can become a nuisance is how routinely they lead to incorrect account balances. If a person or company forgets that a check is outstanding and looks at an inaccurate statement to see how many funds they have available, they might spend more money than they have.
2. 2. Overdraft fees: If someone hasn’t kept track of outstanding checks, they might end up spending too much money because they think they have more of it than they do. Once the outstanding check clears, they could go in the red—meaning you don’t have enough money to maintain a positive bank account balance—and owe overdraft fees. Banks charge overdraft fees when they find you have non-sufficient funds (NSF) in your account.
3. 3. Unclaimed property laws: A company must keep track of its outstanding checks in a bank account and their internal general ledger accounts. If no one cashes the check, the company is legally required to turn over the outstanding amount of money to the state in which they do business. This is a needless and avoidable problem, so long as a company follows up on all outstanding checks.

There are many ways to remedy outstanding checks so that all parties can protect their interests.

1. 1. Contact the payee. Sometimes a payee might have simply forgotten to deposit the check. Other times, they might have never received it. No matter the reason, it’s possible you can rectify your situation with an outstanding check simply by reaching out to the recipient.
2. 2. Keep track of outstanding checks. Regardless of whatever other methods you employ, you should always keep a detailed record of all your checks, especially outstanding ones. This will ensure you don’t spend more money than you appear to have in your account before any check clears.
3. 3. Reissue new payment. If the payee informs you they never received your original check, make sure you stop payment on it to ensure they are not being dishonest. Once you feel confident the payee is being sincere, you can reissue a new check or another form of payment, like a direct money transfer from your account to theirs. The latter method will ensure you don’t have another outstanding check on your hands in the future.
4. 4. Stop payment. If you can’t get in touch with the payee and it’s been months since you issued their check, it might be wise to stop payment. While you could wait for the check to become stale, it’s safer to take out your checkbook and find the check number for this payment. Contact your bank to ask for options about stopping payment on this specific check.
5. 5. Switch to online bill pay. Online banking is a far more efficient accounting system than relying on paper transactions. It leads to far greater accessibility to funds in a much shorter amount of time. Many companies resort to direct deposit—a form of online bill payment—so they don’t have to worry about outstanding checks.

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