What is Outstanding Check?
1106 reads · Last updated: December 5, 2024
An outstanding check is a check payment that is written by someone but has not been cashed or deposited by the payee. The payor is the entity who writes the check, while the payee is the person or institution to whom it is written. An outstanding check also refers to a check that has been presented to the bank but is still in the bank’s check-clearing cycle.An outstanding check represents a liability for the payor. The payor must be sure to keep enough money in the account to cover the amount of the outstanding check until it is cashed, which could take weeks or sometimes even months. Checks that are outstanding for a long period of time are known as stale checks.
Definition
An outstanding check refers to a check that has been written by someone but has not yet been cashed or deposited by the payee. The payer is the entity that writes the check, while the payee is the individual or institution to whom the check is written. An outstanding check also refers to a check that has been submitted to the bank but is still within the bank's clearing cycle. Outstanding checks represent a liability for the payer.
Origin
The use of checks dates back to medieval Italy and the Netherlands as a convenient payment method. With the development of the banking system, checks became a common payment tool. The concept of outstanding checks emerged with the widespread use of checks, reflecting their status within the bank clearing cycle.
Categories and Features
Outstanding checks can be categorized into two types: unsubmitted checks and submitted but uncleared checks. Unsubmitted checks are those that the payee has not yet presented to the bank, while submitted but uncleared checks are those that have been presented but are still being processed by the bank. The main feature of outstanding checks is that they represent a potential liability for the payer, requiring the payer to ensure sufficient funds in the account.
Case Studies
Case Study 1: A company issued a check to a supplier in January 2023, but the supplier did not cash it until March 2023. During this period, the company had to ensure sufficient funds in the account to cover the check. Case Study 2: An individual received a birthday check in May 2024 but did not deposit it until July 2024 due to travel. During this time, the check's payer needed to maintain sufficient funds in the account.
Common Issues
Common issues include: Can outstanding checks lead to overdrafts? If there are insufficient funds in the account, outstanding checks may result in overdrafts. Another issue is check expiration; typically, checks are valid for six months from the date of issue, and may not be cashed after expiration.
