Outstanding Checks: Definition, Handling, and Risks

For individuals, the risk lies in overspending and the potential for overdraft fees should the outstanding check be presented for payment unexpectedly. 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. Fortunately, banks don’t have a legal obligation to honor checks written more than six months in the past. If the old check isn’t six months old, or if you want an extra layer of protection, two strategies can protect you. The owner of this website may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.

Outstanding checks can create discrepancies, complicating reconciliation. Since the bank balance does not yet reflect the check amount, it can present a misleading picture of your actual financial situation. Learn about outstanding checks in finance, including the definition, risks involved, and effective ways to avoid them.

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These checks can pose risks such as overdrawing the account, potential fraud, accounting discrepancies, and delayed financial reporting. For example, payments may show as being paid but if the cash has not yet been debited from the account, there may be inconsistencies worth reconciling. Before sending one, ask the payee to return the old check to eliminate the possibility of both checks being deposited, either intentionally or unintentionally. If a check is destroyed or never deposited, the money remains in the payer’s account. At first glance, this may seem like a positive turn of events for the payer. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

• If the payee finally deposits the check after months of delay, you risk overdrawing your account and bouncing the check.
• SuperMoney strives to provide a wide array of offers for our users, but our offers do not represent all financial services companies or products.
• Outstanding checks are significant in bank reconciliation since they can cause discrepancies between your bank balance and your own financial records.
• Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations.
• Since the bank balance does not yet reflect the check amount, it can present a misleading picture of your actual financial situation.
• If you have further questions you would like answered, don’t hesitate to get in touch with us directly.

With banking activity becoming increasingly electronic, another way to avoid writing a check and forgetting about it is to use the checking account’s online bill pay service. This should provide real-time information about the total dollar amount of checks outstanding and the total dollar balance present in the account. Tracking of payments can be accomplished through the use of checks, which provide both a paper trail and evidence of payment. Through outstanding check definition the use of the check, the sender and the recipient of the payment are able to retain a record of the transaction, which includes the date, the amount, and the payee. In this context, an outstanding check need not be outstanding for long; it may simply be the short period of time between when a check is mailed and when it is received. It’s important to keep track of the amount of checks outstanding because they could be cashed at anytime.

Keep Records

That said, both outstanding checks and outstanding deposits refer to transactions that have not yet been posted to your account. If you’ve issued a check that remains outstanding, it’s good practice to follow up with the recipient. It ensures they received the check and provides a nudge for them to deposit it. Conversely, if you’ve received a check and haven’t deposited or cashed it, doing so promptly is beneficial for both parties involved.

What Is A Checking Account & How It Works – Forbes Advisor – Forbes

What Is A Checking Account & How It Works – Forbes Advisor.

Posted: Wed, 13 Mar 2024 07:00:00 GMT [source]