What are outstanding checks and why are they so important?

A check is an accounting document that a natural or legal person extends to another so that they can withdraw funds from a bank account. But, what are outstanding checks? We explain it in detail below.

What are outstanding checks?

Outstanding checks are those that the recipient does not deposit and, if they are finally deposited, they can cause accounting problems.

Also, it is important that you know that the checks that are never collected may constitute “unclaimed property” that must be turned over to the state.

Keep reading: How to open a checking account at Bank of America?

Why are outstanding checks important?

When you pay someone with a check, your payee must deposit or cash the check to execute the payment. The beneficiary’s bank will request money from your bank, and the transaction is complete when your bank sends funds to the beneficiary’s bank. Alternatively, if you both use the same bank or credit union, the transaction will be complete when the money is transferred from your account to the beneficiary’s account.

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 for the payer. However, it can cause problems in the future.

inflated account balance

If you write a check and the money never comes out of your account, you are likely to develop the false belief that you can spend those funds, but the money still belongs to the beneficiary. If the payee finally deposits the check after months of delay, you risk overdrawing your account and having the check bounced.

unclaimed assets

Businesses should keep track of uncashed checks to avoid violating unclaimed property laws. If payments to employees or vendors remain uncollected, they must eventually turn those assets over to the state. This usually happens after a few years, but the terms vary from state to state.

business accounting

Businesses must keep track of income, expenses, and accounts payable. When payments are still pending, complications can arise. The payment goes to the ledger, but companies must make adjustments during reconciliation, and may need to reissue expired checks.

Important: Companies that mishandle these kinds of accounting situations are breaking the law.

Keep reading: How long it takes Bank of America to make check deposits, transfers and more

What to do with outstanding checks

To remedy these situations quickly, be proactive with outstanding checks. After all, you still owe the money, and you’ll have to pay it back sooner or later. Your first step should be to use an accounting system that deducts uncashed checks from your available funds. After that, there are a few more steps you can take to track down an old check.

call or write

Call or email payees who don’t deposit checks and make sure the check was, in fact, received. If they have the check, try to persuade them to deposit it. If that doesn’t work, send a letter informing the payees that the check hasn’t been presented and officially request that they notify you if they haven’t received payment.

Keep the records, not the boats

Keep all documents related to outstanding checks. This documentation will be helpful if you need to prove to state regulators that you made reasonable attempts to complete the payment. If an outstanding check cashes after you asked a bank to stop payment, you will be responsible for proving that you took the necessary steps to make the payment.

Online Bill Pay

Paying bills online is a great way to avoid all the hassles that can come from using checks.

Note: Online payments offer a more direct way to transfer funds to a beneficiary. In addition, they reduce many complications.

Keep reading: 20 Banks that offer free checking accounts in the United States

Should you write another check?

After speaking with the payee, they may ask you for another check. Before sending a new one, ask the payee to return the old check to eliminate the possibility of both checks being deposited, whether intentionally or unintentionally.

It may be necessary to write a new check without retrieving the old one if the original check was lost or destroyed. In this case, a complicated situation arises, two checks could be circulating for a single payment. If the old check is presented, the bank could honor it, and therefore you would end up paying double.

Fortunately, banks are not legally required to honor checks written more than six months ago. If the old check is not six months old, and you want to protect yourself from this situation, you should use either of these two strategies:

stop payment

If the amount is large enough to cause problems, or if you have doubts about the beneficiary, Consider asking your bank to stop payment on the old check. Stop payment requests cost money and only last six months. If you make the stop payment order verbally and not in writing, it is only valid for two weeks. If you have concerns about outstanding checks on a very frequent basis, you may need to make repeated requests.

look for the deal

Ask the beneficiary to sign a document where they agree not to deposit one of the checks. This won’t stop banks from processing two deposits, but the document can provide evidence in case you need to dispute one of the two checks.

Keep reading: What to do if someone cashes a check that was made out to me?

Why are checks not cashing?

Checks are not deposited for several reasons:

  • No hurry: Payees sometimes fail to process the check. This usually happens when they don’t desperately need the money to make immediate purchases.
  • Checks are sometimes lost: They can get buried under piles of paper or fall behind desks.
  • delivery problems: Checks can be returned by mail if the payee’s address has changed.

Outstanding checks issued to you

If a check was written to you and it’s still outstanding after six months, contact the issuer and request a replacement. As mentioned above, you may need to return the original check or sign documents confirming that the check has been lost or destroyed. You may also be asked in some way to agree not to deposit both checks. If you can’t find the issuer, check your state’s abandoned property program to claim the property.

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