Outstanding Checks

What is an Outstanding Check and Why Should you Care?

Woman looking through large telescope
It's essential to find and contact recipients quickly. Gary Bates / Getty Images

Outstanding checks are not as great as they sound. An outstanding check is a check that has been written but never presented for payment. In other words, the recipient never deposited or cashed the check, so the check is still out there somewhere.

These outstanding items can cause accounting nightmares, and they result in unclaimed property that must eventually be turned over to the state.

Why do Outstanding Checks Matter?

When you pay by check, your payee needs to deposit or cash the check to collect on the payment.

The payee’s bank will request money from your bank, and the transaction is complete when your bank sends money to the payee’s bank (or to the payee’s account, if you both use the same bank or credit union).

If the recipient of a check never does anything with it – or if the check is lost or destroyed – you’ll still have the money in your account. One exception to this scenario is when you use online bill payment through your bank: the funds are often deducted when the check is printed, but the funds will be returned to your account if the payee fails to deposit the check within a certain amount of time.

Inflated account balance: since you still have that money, you may think that you can spend it. Unfortunately, the funds really belong to somebody else. If they deposit the check when you’re not expecting it, you’ll end up with less money than you thought, possibly overdrawing your account and bouncing checks.

Business checks: businesses often keep track of outstanding items and track accounts payable. But businesses also have to deal with unclaimed property laws. If payments to employees or vendors go uncashed, you eventually have to turn that abandoned property over to your state (a few years in most states, but check with local regulators).

If you don’t handle the situation correctly, you’re breaking the law.

What to do About Outstanding Checks

Be proactive about outstanding checks and get things cleared up as soon as possible. Don’t assume that it’s your lucky day and that you get to use the money for other purposes. You still owe the money, and you’ll have to pay it sooner or later (whether it goes to the intended payee or to the state). Use an accounting system that deducts any uncashed checks from your available funds.

Call or write: if you notice that a check has not been deposited, contact your payee. A simple phone call or email is fine – just check in to make sure they received the payment and ask if they’ll deposit the check. If that doesn’t work, it’s a good idea to send a letter informing them that the check has not been processed, and they should notify you if they have not received the payment.

If you need a template, use our sample Letter for Outstanding Checks.

Be sure to document any communication about outstanding checks. You may need to prove to state regulators that you’ve made reasonable attempts to complete the payment, but the payee either didn’t cooperate or it was impossible to contact the payee.

Should you Write Another Check?

Once you talk with your payee, they may request that you send another check, which they’ll promise to deposit promptly.

Before doing this, ask them to return the old check if possible. This eliminates the possibility that they will (intentionally or unintentionally) deposit both checks.

In some cases, you’ll need to issue a new check without getting the old check back. The check may have disappeared for whatever reason, and your payee needs a new one. This puts you in a tricky situation because you will have two checks out for a single payment. If the old check gets deposited, your bank might honor the check, and you’d end up paying double. Banks generally won’t honor checks written more than 6 months ago, but it happens often enough that you should be careful (even if you print “Void after 90 days” or something similar on your checks).

If the amount is large enough to cause problems (or if you don’t trust the payee), consider asking your bank to “stop payment” on the old check.

This approach is not perfect, but it can help protect you. Stop payment requests cost money, and they only last for 6 months, so you may have to do this several times.

Why don’t Checks get Cashed?

There are several reasons that checks don’t get deposited. The simplest reason is that your payee simply hasn’t gotten around to processing the check. Maybe they don’t need the cash urgently, and they’ve been busy doing other things.

Checks can also get lost in piles of paper or fall behind desks. Again, if the money is not terribly important to the payee, it doesn’t get noticed. Finally, checks may be returned to you in the mail if a payee’s address has changed, but that process can take surprisingly long.

Checks Issued to You

If a check was issued to you and it’s still outstanding, contact the check issuer and ask for a replacement. You may need to return the original check or sign documents saying that the check is lost or destroyed (and that you won’t try to deposit both checks). If you can’t find the issuer, check with your state’s abandoned property program.