A check is a document that serves as an order to a bank to pay another party. Usually, an account holder will have a check book that they can use as a form to request this payment. Using this document, the account holder can make a request from their bank to use a specified amount from their account. There are several features that checks can have, such as date, payer, payee, amount, etc.
Each characteristic or feature in a check has a crucial part to play in it. For example, the payee defines the party to whom the bank will make the payment. Similarly, the check specifies the time when the account holder issues it or after which the bank must make the payment. The payee cannot withdraw the amount before this date. However, they must also deposit the check before a certain time, or it will become stale.
What is a Stale Check?
A stale check is a type of check issued by a payer that a payee has not deposited before a considerable time. Mostly, this time is constant as six months and it is always shown up on the bank reconciliation. So if a payee fails to deposit the check in the bank six months from the check date, the check will become stale. Some banks may refuse to pay the payee for the check amount since it may raise questions.
Some banks may also contact the payer to confirm the issuance of the check. Usually, banks have to make these confirmations due to regulations that apply to most banks. On top of that, it is a part of the due diligence process carried out by banks to avoid any fraudulent activity. For the bank, the delay between the check and payment date is an issue of concern.
Overall, a stale check is a check that has gone through six months after the date after the check date. Most banks either check with the payer to confirm the issuance of the check or request them to issue a new check. However, there is no requirement for the bank to honor the check.
How does Stale Check work?
Stale checks are concerning for banks as considerable time has gone by between the check and payment date. Therefore, it causes suspicion on why the payer failed to present the check for that long. As mentioned, there are several regulations that require banks to take action against these types of checks. Some banks may, however, also check with the payer before dishonoring the check.
In the United States, the Uniform Commercial Code allows banks to dishonor stale checks. The bank receiving the check can return it to the paying bank and mark it unpaid. In contrast, the bank may also request a new check from the payee. Lastly, if the payer has an account in the same bank, the bank may contact the payer for confirmation.
What is an example of Stale Check?
A company, ABC Co., buys goods from its supplier, XYZ Co., on 1st January. ABC Co. also makes the payment for these goods on the same date. ABC Co. also mentions 1st January on the check as the check date. However, XYZ Co. does not present the check to the bank until 15th July. At this date, the check has gone through seven months without presentation.
When the bank received the check, it refused to honor it. It is because the bank considers the presented check as stale. The bank requested XYZ Co. for a new check. In that case, XYZ Co. contacted ABC Co., which issued a new check. This time, XYZ Co. presented the check to the bank after three days. The bank made the payment to XYZ Co.
How does a Stale Check differ from a Post-Dated Check?
Stale checks differ from a post-dated check from the date mentioned on the check and the date at which the payee presents it. For a stale check, as mentioned, the check date is six months before the payment date. Therefore, the check date has already gone by, and the check has already become valid. The payee can present the check at the bank and get paid when the bank makes the necessary checks.
A post-date check, on the other hand, has a date that is yet to come. Therefore, the check has not become valid yet. Payers use post-date checks as a promise to pay at a future date. Hence, they use a date that is in the future. If the payee takes the post-dated check to the bank, they will not get paid. That is because the check does not become valid until the time mentioned on the check.
Conclusion
When a payer pays through a check, the payee must present it to the bank before a specific time before it becomes stale. Usually, this time is six months. After this date, the check becomes stale, and the bank may refuse to pay the payee. Some banks may also make further checks or request a new check instead. Stale checks are concerning to banks due to the considerable difference between the check and payment dates.
