Outstanding check

An outstanding check is a check payment that has been recorded by the issuing entity, but which has not yet cleared its bank account as a deduction from its cash balance. The concept is used in the derivation of the month-end bank reconciliation.

There is typically a multi-day period between when a check is created and when it is presented for payment, which is caused by the time required for the postal service to deliver the check, as well as for the payee to deposit it. The check may also be delayed if the issuing entity puts off mailing the check for any reason.

If an outstanding check has not yet cleared the bank by the end of the month, it does not appear on the month-end bank statement, and so is a reconciling item in the month-end bank reconciliation prepared by the issuing entity.

An outstanding check remains a liability of the payor until such time as the payee presents the check for payment, which then eliminates the liability. If the payee never presents the check for payment, the payor can mark the check as void in its accounting system, which usually marks the original account payable as unpaid, and also increases the balance in the cash account by the amount of the outstanding check that is now being voided.

A common problem for the payor is keeping sufficient cash in a bank account to pay off all outstanding checks, since a few residual checks may not be cashed for a long time (as may be the case with, for example, a rent deposit check or a bid bond). If the payor assumes that an outstanding check will not be cashed and therefore reduces the cash balance in the related checking account, this puts the payor at risk of having the check rejected whenever it is finally presented for payment, due to a lack of funds.

If a payee receives a check and does not present it for payment at once, there is a risk that the payor will close the bank account on which the check was drawn. If so, the payee will need to receive a replacement payment from the payor.

Similar Terms

An outstanding check is also known as an outstanding cheque.