How Long Are Checks Good For?

This should provide real-time information about the total dollar amount of checks outstanding and the total dollar balance present in the account. One of the ways of making payment for a transaction is by check. A check is a financial instrument that authorizes a bank to transfer funds from the payor’s account https://www.bookstime.com/ to the payee’s account. When the payee deposits the check at a bank, it requests the funds from the payor’s bank, which, in turn, withdraws the amount from the payor’s account and transfers it to the payee’s bank. When the bank receives the full amount requested, it deposits it into the payee’s account.

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When you write a check, behave as if the money is no longer in your account. In the past, people did this by recording every transaction in check registers. Balancing your checking accounts (whether on paper or electronically) is still a good practice. Implementing these strategies can greatly reduce the risk to cash flow stability posed by outstanding checks, keeping financial management on track and reliable. For individuals, the risk lies in overspending and the potential for overdraft fees should the outstanding check be presented for payment unexpectedly.

Avoiding Outstanding Checks

It’s important to keep enough money in your account to cover all the outstanding checks at all times. 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.

What do I need to know about outstanding balances?

Because interest is added daily, it’s a good idea to pay off your balance. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. You may have heard the term “outstanding check” and wondered what is an outstanding check.

An outstanding check represents a check that hasn’t been cashed or deposited by the recipient or payee. One state is that the payee has the check but hasn’t deposited or cashed it. They outstanding checks must make sure that enough money remains in their checking account to cover the check until it is paid. The payee may cash the check immediately or might hold onto it for months.

• In the U.S., outstanding checks are considered to be unclaimed property and the amounts must be turned over to the company’s respective state after several years.
• Even though they seem simple, checks have specific terms and rules that can be confusing at times.
• An average outstanding balance is the amount you owe averaged over a specific time period.
• They might even take it to your bank and cash the check so that it clears instantly.

How Long Are Checks Good For?

Outstanding checks refer to checks that have been issued to a recipient but have not yet been cashed by the recipient or the recipient’s bank. 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. To completely avoid the issue, you could choose not to write checks. Instead, electronic cash payment methods, such as Zelle®, take the money out of your account faster.

• 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.
• Best practices for managing and clearing outstanding checks include regular bank statement reconciliation, promptly voiding or canceling unused checks, and maintaining proper record-keeping.
• By not trusting the payee to take action, you remove the possibility that they will forget or put off cashing or depositing the check.
• Don’t forget to include any charges that haven’t shown up on your credit card account yet.

On the other hand, there might be instances when the bank delays in processing the check due to various operational reasons. With $0 minimum to open online and Low Cash Mode® to help avoid overdrafts. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Outstanding checks are common for business owners and individuals. They are simply checks that have not yet been cashed or deposited at a financial institution. Since they are still outstanding, the payor (the entity that issued the check) should keep enough cash in their account so they can pay all outstanding checks. The payee, or recipient, should take steps to deposit outstanding checks as quickly as possible to avoid the risk of their becoming void.

Why Outstanding Checks Matter

An outstanding check doesn’t cost anything beyond the paper it’s printed on. However, having to cancel or put a stop payment on a check can be costly. Outstanding checks may cause issues for both the payor and the payee. On the payor side, it creates the need to carefully track uncashed checks so that money doesn’t get spent on other things. However, if your budget is handled appropriately and all checks are marked as pending, you’ll know not to spend that money. Checks are simple financial tools that depend on both the payor and payee to take action to complete the payment.

Difference Between Outstanding Checks & Outstanding Deposits

• The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
• She currently works full-time as a senior editor at a major book publisher and resides in Nashville, Tennessee.
• One way to avoid this occurrence is to maintain a balanced checkbook.
• Tools like digital banking apps, online money transfers, and direct deposits offer instant, effortless transactions in real-time.
• An outstanding check refers to a check that has already been issued to the recipient.
• Fortunately, banks don’t have a legal obligation to honor checks written more than six months in the past.

When the payee cashes the check, and their bank tries to pull funds from the payor’s account, the payor will get hit with an overdraft or non-sufficient funds (NSF) fee. The payor can void these fees using overdraft protection on their checking account. Business checks often include a note that reads, “Void after 90 days.” This encourages the recipient to cash the check right away—even if the 90-day deadline isn’t real.