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Outstanding Checks

What are they, and what do I do About Them?

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Outstanding checks are not as great as they sound. They’re not outstanding because they’re fantastic, instead they are simply checks that have never been deposited. In other words, you tried to pay somebody (by writing or issuing a check), but the payee hasn’t claimed the money yet.

When you pay by check, your payee needs to take the check to a bank and deposit or cash the check for the transaction to be finalized. If they don’t, you still have the money. Note that in some cases (when you use an online bill payment service, for example) you’ll see the money disappear from your account before the check is deposited – but the money will return if the check is not processed in a timely fashion.

Why are Outstanding Checks Important?

Outstanding checks can be a pain. For starters, they can make accounting difficult. You may believe you have more cash available than you really have. If you write a check that is not deposited immediately, you’ll see cash in your account that you can’t really use. As time passes, you may forget that you can’t use the cash. Businesses often solve this problem by tracking accounts payable.

If you run a business, outstanding checks can also get you in trouble with state regulators. You may have to turn money over to the state if your employees or vendors don’t cash their checks after a certain period of time. If you don’t, you’re breaking the law and holding on to others’ unclaimed property.

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.

What to do About Outstanding Checks

It’s important to 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. It’s better to pay when you expect to pay the expense than to leave things lingering out there.

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 Letter for Outstanding Checks.

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

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.

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