When someone has been paid with a check, the check must be deposited or cashed to receive payment. The payee’s bank will then request money from payer’s bank account to be transferred into the payee’s bank account.
If a check is never deposited for whatever reason, the money remains in the payer’s account. This might seem like a positive thing for the payer, but this can cause problems down the line.
Inflated Account Balance
If the written check amount never leaves the account, the payer may think they have more funds available to spend, but the money still belongs to the payee. If the payee finally deposits the check after months of delay, the payer risks overdrawing his account and bouncing the check.
Most people are not aware of this law. Businesses must track outstanding items to avoid breaking unclaimed property laws. If payments to employees or vendors remain uncashed, they eventually must turn over those assets to the state. This typically occurs after a few years, but timetables vary from state to state.
Businesses must track income, expenses, and accounts payable. When payments remain outstanding, complications can arise. The payment goes on the general ledger, but businesses must make adjustments during reconciliation, and they may need to reissue stale checks.