CandleFocus Glossary Editor
Checks are a commonly used payment method, both in personal finance and in business accounting. An outstanding check is a check that has been issued but has not been deposited or cashed by the recipient. This is an important concept to understand because an outstanding check still constitutes a liability for the payor who issued it. For example, if a customer issued a check for payment for an invoice and it has still not been deposited, that customer still owes that money to the recipient, regardless of whether or not the check has been cashed.
When a check is outstanding, payors have some flexibility in that they may actively pursue getting the check back or even issue a stop payment on it, preventing it from being deposited. In other words, the payor has the ability to recall an outstanding check even after it is issued, before the recipient has had a chance to cash it. This ability comes with a cost, however, as banks and financial institutions typically charge a fee to put a stop payment on a check.
If a check becomes outstanding for too long, it might also become void – or unenforceable – either due to the payment having expired or the funds not being available in the payor’s account to cover it. For example, in the case of post-dated checks, the check is considered void if it is presented more than six months after the date it was written or if the payor dies before the check is presented. If a check is returned for insufficient funds (NSF), it also typically becomes void.
For payors, it’s important to stay on top of outstanding checks, both in terms of taking steps to recall them from recipients and to stay abreast of their validity. When issuing checks, include expiration dates and post-dated checks whenever possible. Take the appropriate steps to ensure payments are deposited before the expiration date. Similarly, do regular reviews of the accounting ledger to identify checks that have gone unpaid for long periods of time, investigate the situation and take any needed action. For recipients, the same advice applies – make sure to deposit checks in a timely manner or contact the issuing institutional in a timely fashion if an issue arises.
Overall, understanding how outstanding checks work and taking the proper steps to manage them is an important part of financial responsibility and can help both payors and recipients protect their funds and prevent any unexpected surprises.
When a check is outstanding, payors have some flexibility in that they may actively pursue getting the check back or even issue a stop payment on it, preventing it from being deposited. In other words, the payor has the ability to recall an outstanding check even after it is issued, before the recipient has had a chance to cash it. This ability comes with a cost, however, as banks and financial institutions typically charge a fee to put a stop payment on a check.
If a check becomes outstanding for too long, it might also become void – or unenforceable – either due to the payment having expired or the funds not being available in the payor’s account to cover it. For example, in the case of post-dated checks, the check is considered void if it is presented more than six months after the date it was written or if the payor dies before the check is presented. If a check is returned for insufficient funds (NSF), it also typically becomes void.
For payors, it’s important to stay on top of outstanding checks, both in terms of taking steps to recall them from recipients and to stay abreast of their validity. When issuing checks, include expiration dates and post-dated checks whenever possible. Take the appropriate steps to ensure payments are deposited before the expiration date. Similarly, do regular reviews of the accounting ledger to identify checks that have gone unpaid for long periods of time, investigate the situation and take any needed action. For recipients, the same advice applies – make sure to deposit checks in a timely manner or contact the issuing institutional in a timely fashion if an issue arises.
Overall, understanding how outstanding checks work and taking the proper steps to manage them is an important part of financial responsibility and can help both payors and recipients protect their funds and prevent any unexpected surprises.