Want to learn how to clear old outstanding checks?
Read on.
Written By Kevin Mil - Author/Founder
Old outstanding checks can quickly become a burden if left uncleared for too long.
To avoid this hassle, we’ll outline three efficient methods to clear old checks in this post.
Each approach comes with its own benefits, and I’ll provide a concrete example to illustrate how you can put these strategies into action.
To begin clearing old outstanding checks, it’s essential to first identify them.
This involves sorting dates from the lists of outstanding checks to determine which ones are eligible for clearance.
A company policy should also be established regarding when to start clearing these old outstanding checks, typically after they have been outstanding for four months.
However, some companies may choose to begin this process as early as three months prior, but I believe starting at the fourth or fifth month is a more reasonable approach.
1. Contact the payees
Clearing old outstanding checks requires a straightforward approach.
To start, contact the individuals or businesses who received the checks (the payees) and inquire about their status.
A phone call or interview can help determine why they haven’t deposited the checks yet – perhaps they’ve misplaced them or have another reason for not cashing them in.
In some cases, offering to replace the check with cash may be an option, but this would require company resources, so it’s essential to have a clear policy in place to handle these situations efficiently and effectively.
If you’re unable to reach a payee through a phone call, don’t worry – there are other ways to get in touch.
You can also try contacting them via email or social media platforms.
If all else fails, you may need to visit their home address to deliver a payment or clear outstanding checks.
Before taking this route, however, be aware that your business may be subject to laws governing the turnover of old checks, such as estate laws, which we’ll discuss in more detail next.
2. Identify Stale checks
Old outstanding checks that remain uncashed for six months or more are considered “stale” and are no longer accepted by a bank.
In fact, if it has been six months or longer since the check was issued, it is already invalid.
Some states even require companies to turn over stale checks to the government.
As a result, you can begin clearing old outstanding checks by preparing journal entries, which we will discuss in more detail in the next sections.
3. Record the Cancellation with Journal Entries
Now that you have contacted payees or bearers of old outstanding checks and identified stale ones among them, it’s time to record adjusting entries to clear these outdated payments.
The typical adjusting entry involves debiting the Cash in Bank account and crediting a contra account, depending on the original accounting entry when the check was issued.
For instance, if the payment was for accounts payable, you would credit the accounts payable account.
This process ensures that all outstanding checks are properly accounted for.
However, if you decide to turn over stale checks to the government, the credit entry must be a payable account due to the government, reflecting the new obligation.
- Debit: Cash in Bank
- Credit: Accounts Payable/ Due to the Government/relevant account
Example – Clearing
Meet Michael, an owner of a small graphic design business.
He had written a $1,500 check to his vendor, “Best Signs,” back in December for some custom signage work.
Unfortunately, the vendor’s accounting department was slow to process payments, and Michael’s check got lost among other transactions.
Michael decided to call Best Signs’ office to clear up the situation.
“Hi, I’m calling about a payment from last year,” he said. “I wrote a $1,500 check for some custom signage work.
Have you guys received it yet?”
The accounting department confirmed that they had not received the payment and thanked Michael for reaching out.
The rep explained that their system was still processing old payments, but she would make sure to get an update on the status of his payment.
Michael then asked about the current balance due. “Is there a new invoice I can pay to clear this up?” he asked.
The rep confirmed it and sent him the updated invoice, which he promptly paid online using their secure payment portal.
By contacting Best Signs directly, Michael effectively reversed the stale check, cleared his outstanding check balance, and ensured that both parties were on the same page regarding their business transaction.