Outstanding Check

An outstanding check is a check that a depositor has written and handed over to a payee, but that has not yet been presented to the depositor's bank for payment and has therefore not yet been deducted from the account balance shown on a bank statement. Until the payee deposits or cashes the check and it clears, the check remains outstanding.

Outstanding checks explain why a chequebook register and a bank statement can show different balances at the same point in time without either being wrong: the chequebook register reflects every check written, while the bank's recorded balance only reflects checks that have actually cleared.

Writing a check is a bit like promising to pay with a coupon that the recipient has to redeem before the money actually moves. Until that coupon is handed in, the bank has no idea the payment was promised, and the account balance on the bank's records looks exactly as it did before the check was written. Only once the payee deposits the check does the bank finally deduct the money, at which point the check stops being outstanding.

This gap between writing a check and the bank processing it is exactly why financial advisers warn against spending based on a chequebook balance alone without accounting for every check still out there waiting to be cashed.

• They explain discrepancies between a chequebook register and a bank's reported balance.
• They can cause an account to appear to have more available funds than it truly does, risking an unexpected overdraft if the payee eventually cashes the check.
• They must be accounted for when performing a bank reconciliation, to confirm the true, adjusted balance.

A check that remains outstanding for an extended period, often around six months, can become a stale-dated check, which a bank is not obligated to honour if it is eventually presented, though many banks will still pay one at their discretion unless specifically instructed otherwise by the issuer.

Careful account holders are generally advised to keep a running list of outstanding checks alongside their bank statement, specifically to avoid spending against funds that look available on paper but are, in reality, already earmarked for a check that has not yet cleared. This kind of tracking becomes especially important for anyone writing multiple checks around the same time, since several can clear in quick succession, sometimes unexpectedly, once payees finally get around to depositing them.

Businesses that write a high volume of checks often use dedicated accounting software to track outstanding items automatically, reconciling their internal records against the bank's cleared transactions on a regular schedule rather than relying on manual tracking alone.

The period during which a check remains outstanding has generally shortened considerably with the spread of electronic check processing and imaging technology, which allows banks to clear checks far faster than the days it once took to physically transport paper checks between institutions. This reduction in processing time has correspondingly reduced what is sometimes called float, the gap between when a check is written and when it actually clears, narrowing the window during which an outstanding check can create a mismatch between a chequebook balance and the bank's own records.

Even with faster clearing, the basic concept of an outstanding check remains relevant wherever paper checks are still used, since any gap at all between writing and clearing creates the same fundamental timing issue, just compressed into a shorter window than in the past.

Businesses that issue a large volume of checks sometimes maintain a specific liability account on their own books representing the total value of checks written but not yet cleared, giving their accounting records an accurate, real-time picture of true available cash distinct from the raw bank balance alone.

Some businesses proactively contact long-time payees of old outstanding checks to encourage deposit, both to keep their own books accurate and to avoid the check eventually being treated as unclaimed property under escheatment rules.