It is not uncommon for businesses to delay depositing or cashing a check, particularly if the amount is relatively small. However, business owners need to know that certified checks expire and can become stale if not deposited or cashed within a certain timeframe.

Understanding Stale Dated Checks

A stale check presented to a bank after six months may be declined as an irregular bill of exchange.

If this happens, there are two potential ways to solve the problem:

  1. Ask the check writer (or issuer) to change the date on the replaced check;
  2. Ask the issuer to issue a new check.

In the United States, the Uniform Commercial Code (UCC) does not require banks to cash checks older than six months. Banks can refuse to cash uncertified checks that belong to their customers. However, certified checks issued within six months are accepted by banks.

If a financial institution that issued the check permits the business to cash it, the decision is typically influenced by the following factors:

  • Whether the bank account is still open and in a good state.
  • The owner of the account or the payer approved this action.
  • There are funds to cash out the check.
  • The name on the check and account match.
  • The payee’s name matches the person’s ID (the one requesting to cash out the check).

If the bank accepts a check for deposit, it depends on several factors:

  • The bank which issued the check is still operating.
  • Enough money on the depositor’s account to cover the check.
  • The payor’s account is still open.
  • The bank verifies there are funds within the account and they are available.
  • There is no stop-payment order in effect.
  • If the stale check is returned, the bank may charge a fee for returning the check.

Unclaimed Property & Escheatment

In the United States, every state has escheatment laws. These laws mandate that businesses give away unclaimed property after a certain period of time. Unclaimed property can include uncashed checks to contractors, vendors, employee payroll, as well as distributions to stockholders.

Each state has distinct regulations regarding the timing for companies to disclose their unclaimed property. The dormancy period signifies the duration required for uncashed checks to qualify as unclaimed property.

The duration of the dormancy period varies significantly from state to state. The Securities and Exchange Commission (SEC), the governmental oversight agency responsible for regulating these affairs, asserts that this period is typically “five years.” However, specific state laws determine this so confirm that this period is not shorter than five years.

Businesses should promptly address stale-dated checks to prevent them from becoming unclaimed property. The National Association of Unclaimed Property advises sending a formal letter to business owners if their property risks becoming unclaimed.

A warning should be issued in advance, allowing the business owner sufficient time to respond. If attempts to notify the business owner are unsuccessful, the state will intervene as per SEC regulations. The states will maintain the account as a bookkeeping entry, but the previous owner of unclaimed property retains the right to make a claim.

How Stale-Dated Checks Impact a Business?

Every business owner should recognize that if their vendors or partners do not deposit checks, those funds do not remain with the business. A stale check is owned by the recipient or the state, leaving the business without additional funds.

As stated in the article, business owners must address stale checks by notifying their original owners under the escheatment law applicable in all US states.

Usually, accountants or bookkeepers identify a stale-dated check and alert business owners. Reach out to the check owner to notify them about the impending expiration. In case of loss, consider issuing a new check to prevent dealing with a stale-dated check later.

Actions to Take in Case a Stale Check Occurs

Two scenarios can arise concerning stale-date checks. In the first scenario, a business owner identifies a stale-dated check in their records. This indicates that the vendor did not cash it or deposit it promptly. The business owner may come across an expired check in the second scenario.

Stale Check on Books

If a check is nearing expiration, the responsible party should contact the recipient to process it. If the recipient refuses to use the check, the escheatment procedure must be followed. This means your company will not retain the funds as they rightfully belong to the recipient or the state.

If the recipient reports the check as lost, issue a new one. Place a stop payment order on the original check to prevent it from being cashed. The stop payment directs the bank not to cash the check, effectively voiding it. This action ensures that the recipient cannot cash both checks.

A Business Owner has a Stale Check

Business owners or accountants may come across stale checks they misplaced or forgot to cash. Reach out to the issuer; most companies will issue new checks even if the old ones are expired. Dealing with a government check simplifies the process.

If contacting the issuer proves impossible, the next step is to contact the bank. Some banks accept stale checks, but only from legitimate issuers with sufficient funds in their accounts.

Should the bank be uncooperative, the final option is to contact the company’s home state. Per the escheatment law, companies must surrender unclaimed funds, which the state holds in trust for the previous owner to reclaim.

Experts advise cashing checks promptly, preferably within a month. Certain checks may have shorter expiration periods, such as 180 days (six months) or even 90 days (three months), after which some banks may decline to process them.

A stale-dated check is no longer valid as a form of payment. Such checks remain valid for six months from the date of issue. Should a check become stale, the bank will not honor it and will decline to credit its value to your account. To avoid financial loss or the hassle of complex claim procedures, promptly deposit the check within one month.