What is a Stale Check?
Stale Check is the check which holder presents to the bank in six months or more after its effective date. The bank has no obligation to pay for such a check. There are some reasons which the holder fails to clear the check within a normal period. They may lose or misplace the check and just found it and wish to claim the cash.
The check which is six months older than its payment date does not have to be honored by the bank. The bank may return the stale check to the payment bank with the stamp “unpaid” and ask for a new check. Or the bank may negotiate with the issuer to write a new one.
Stale Check Example
On 01 Jan 202X, Company A brings a check to its supplier, the check will be effective on the same day. The supplier’s staff has misplaced the check and fail to deposit it. On 01 Dec 202X, the supplier just bring the check to the bank and wish to deposit it into their account.
It is almost 12 months after its effective date and the check is considered a stale check. The bank decides to return the check to the issuing bank to clarify with the issuer.
How do I know if I have issued a Stale Check?
- The date on the check: We can refer to the date on the check. If it is older than 6 months, it will be staled.
- The time limit: The bank may mention the time period regarding the check effectiveness. For example, they may be written “Valid within 90 days”, so the check will be useless after the effective date.
- Be aware of the issued check: We should keep the list of the issued check. If they are older than 6 months, we have to note it down. We may be able to see the outstanding check in the monthly bank reconciliation.
How to Prevent Any Trouble With The Stale Check?
Dealing with a stale check is take time as it requires dealing with customers, issuer, and bank. So both issuer and receiver should have some procedure to prevent such an issue before it reaches the banks.
As the issuer, we will be able to know how many unclear check as they are part of the reconciling items in the bank reconciliation. If we notice that some checks are approaching the expiration date, we should contact the supplier and ask them to clear the check. If they lose the check, we may need to cancel the old check and issue a new one for them. We can cancel the check by issuing the stop payment notice to the bank to prevent any cash out on the old one. This stop order will prevent anyone from cashing the existing check.
For the receiver, we should set up strict policies to clear the check on time to prevent any unexpected issues such as loss or fraud. The check should be deposited within a month after receiving it from the customers to ensure that they are properly clear. Any check clear later than one month should be investigated. It will help the accountant to control their balance as well.
Unclear check should be recorded in a separate account (Uncleared Check) in the balance sheet so that it will alert staff every month end. It is also easy for the management to review the financial statement and pay attention to long outstanding uncleared checks.
In case we found that some stale checks, we must immediately contact the issuer and ask for a new one. At this stage, the issuer can ask for an old check, void it, and issue a new one. It is easy than working with the bank which will take more time.
What happens if we cash the stale check?
There are some risks that involve the cashing of stale checks. Please check the following:
- Check bounce back: if we go to cash the stale check, the bank may return the check.
- Check to be rejected: some banks may not accept the stale check in the first place.
- The penalty from Bank: The bank may penalty the cashing of stale check if the receiver already aware of the date on the check.
Difference Between Stale Check and Post Dated Check
Post date check is the check which presents at the bank before the effective date. The receiver cashing the check before the date state on the check. The issuer release check to the receiver before the effective date as a promissory note. They know that there is not enough cash in the balance, so they write the future date on the check.
The receiver (drawee) cannot cash the check from the bank as the issuer already mention the effective date. The bank will not withdraw the cash even the account has enough balance. If they need the cash early, they should bring back the check and ask the issuer to renew with an early date.