Outstanding Checks: Definition, Handling, and Risks

In the bank reconciliation, outstanding checks are deducted from the balance per bank. When you write a check to vendor, the bank has no idea the check has been written. Once the check has been deposited or cashed by your vendor, your bank will debit your account and mark it as a cleared check on your next statement. You are entirely dependent on when the vendor decides to cash the check. You can tell if a check is outstanding by reviewing your online bank account. From there, you can confirm whether or not the check has been processed.

• In fact, in most jurisdictions, an issued check will still be deposited by banks up to six months after the issue date.
• This prevents someone from trying to cash or deposit it and possibly having it affect your account balance.
• Note the check number, the amount, who it’s written out to, and what it’s for.
• •   Reach out to the bank to confirm its policy on old or expired checks.
• For individuals, the risk lies in overspending and the potential for overdraft fees should the outstanding check be presented for payment unexpectedly.

How to Handle Outstanding Checks?

Some businesses print “Void after 90 days” on their checks to encourage recipients to deposit checks more promptly. Most banks will continue to honor checks for the full 180 days, but that isn’t guaranteed. To prevent problems, you should cash or deposit a check promptly after receiving https://www.bookstime.com/ it. Like business checks, personal checks are generally considered invalid after six months (180 days). Outstanding personal checks can cause budgeting problems, but you may have an easier time reminding a friend or family member to cash a check than a business payee.

Why Do Checks Become Outstanding?

In other words, the person or company that issued the check is still waiting for the value of the check to be withdrawn from their account. Outstanding checks are significant in bank outstanding checks reconciliation since they can cause discrepancies between your bank balance and your own financial records. If you’ve issued an outstanding check, you need to monitor your account.

• Below are two of the most common questions that we receive from people looking into what an outstanding check is.
• Another useful practice is to write “outstanding” on the memo line of the check when you write it so you can easily track every check you write.
• On your reconciliation sheet, outstanding checks are often subtracted from your balance per bank because these withdrawals have not yet happened but are simply a timing matter.
• The money to cover the check must be available when your recipient deposits the check.

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For individuals, the risk lies in overspending and the potential for overdraft fees should the outstanding check be presented for payment unexpectedly. For businesses and individuals alike, outstanding checks can introduce uncertainty into cash flow management. These checks represent funds subtracted on paper but not physically withdrawn. It may be necessary to issue a new check without getting the old check back if the original check was lost or destroyed. This presents a thorny situation—two checks might be circulating for a single payment. If the old check is deposited, your bank might honor it, and you could consequently end up paying double.

Outstanding shares include share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. These shares appear on a company’s balance sheet under Capital Stock. A company’s number of outstanding shares is not static and may fluctuate wildly over time. Outstanding shares are used to calculate key metrics for companies. Another useful practice is to write “outstanding” on the memo line of the check when you write it so you can easily track every check you write. Note the check number, the amount, who it’s written out to, and what it’s for.

• If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state.
• In our modern digital world, most of our financial actions are electronic.
• Holding on to checks for a long time also increases the likelihood that they will get lost or destroyed before they are cashed or deposited.
• If you cannot find the issuer, consult your state’s abandoned property program to claim assets.
• It is imperative for an issuer to provide payees with timely communication regarding the issuance of a check as well as any pertinent details as soon as possible.
• If more than six months have passed, that check may well be expired and considered void.

They are separate from treasury shares, which are held by the company itself. In a bank reconciliation the outstanding checks are a deduction from the bank balance (or balance per the bank statement). Checks which have been written, but have not yet cleared the bank on which they were drawn.

Outstanding Check: Definition, Risks, and Ways to Avoid

On the other hand, there might be instances when the bank delays in processing the check due to various operational reasons.

Putting a stop payment on a misplaced or stale check may prevent issues down the road, especially if there’s a concern that it could fall into the wrong hands. However, this doesn’t always solve the problem, as it costs a fee to the payor and is only valid for a limited time. We answer your questions about this financial term and what to do when managing an outstanding check.