Cleared

A check is described as cleared once it has been received and actually paid by the bank on which it was drawn, with the check number and amount then appearing on the company's bank statement as a completed transaction. Clearing is the final step in a check's journey from being written to actually moving funds out of the payer's account.

When a company writes a check, the recipient typically deposits it into their own bank account, which then presents the check to the payer's bank for payment, a process that historically took several business days and has sped up considerably with electronic check processing. Until that presentment and payment actually occur, the check is described as an outstanding check from the payer's perspective, meaning it has been written and recorded in the payer's own books but has not yet cleared the bank.

The gap between when a check is written and recorded in a company's books, and when it actually clears the bank, is one of the most common reconciling items in a bank reconciliation: the company's own book balance already reflects the check as having been paid, while the bank's balance will not reflect it until the check actually clears. A reconciliation has to subtract the total of all checks written but not yet cleared from the bank's reported balance to arrive at the true, reconciled cash position.

Once cleared, a check cannot ordinarily be stopped or reversed by the payer, since the funds have already actually moved out of their account and into the recipient's, which is why a company that discovers a problem with a check, such as an incorrect amount or a payment made in error, needs to act quickly with a stop payment request before the check actually clears, since that option disappears entirely once clearing has occurred.

Electronic transactions such as wire transfers and ACH payments generally settle far faster than a traditional paper check, often within the same business day, which has made the specific delay between writing and clearing a check increasingly a feature of paper-based payment methods specifically, even as the broader concept of distinguishing initiated-but-not-yet-settled payments from fully cleared ones remains relevant across every payment method a business uses.

A company writes a $5,000 check on March 28, recording it in its own books that same day. The recipient doesn't deposit it until April 2, and the payer's bank doesn't actually process and clear it until April 4. On March 31, the company's bank reconciliation would list this as an outstanding check, since it had been written and recorded but had not yet cleared the bank by that date.

Even though most check clearing today happens electronically within one or two business days rather than the week or more it could take decades ago, the gap between writing a check and it clearing still creates real timing differences that a bank reconciliation has to account for. A check that has not yet cleared is called an outstanding check, and it is subtracted from the bank's reported balance during reconciliation, since the bank has not yet processed it even though the company's own books already reflect the payment as made. A check that never clears at all because it was lost or simply never cashed is eventually voided and reissued, or, after enough time passes under applicable state law, may need to be reported as unclaimed property instead.