Why it Takes Time for Checks to Clear the Bank
You've probably noticed that sometimes it takes a while for personal checks that you write to be withdrawn from your account. On the other hand, maybe you've had to wait for a check you deposited to show up in your account balance.
That's because it takes time for financial institutions to process and clear both personal and business checks. A check is said to be outstanding during the time it is being processed and cleared.
For example - if you write a check at the gas station on Monday, they may not bring the check to the bank until Wednesday. Then the check still needs to be sent to your bank to collect the money from your account. That's why it can take a few days for a check to clear. The check would be considered outstanding during that time.
Advancements in technology, including electronic processing tools and a federal law called Check 21, have made it possible for banks and merchants to clear checks faster and more efficiently. Because of this, it is unwise to assume you can take advantage of what's sometimes referred to as "check float."
Check float is the time it takes for the money to actually leave your account. The delay may be because the check has to be transported by mail, then sent to the bank collecting the money, and then to your bank to collect that money.
The most responsible thing you can is act like the money has been taken from your account as soon as you write the check. Keeping a check register for your business or personal finances can help you remember exactly how much money you have available.
When a bank is clearing your check, it is scanned for compliance purposes, and examined for a number of things. They have to make sure the date is appropriate, all necessary fields are filled out, and that the signature matches your signature card on file at your bank.
If there are problems with your check, it may be sent back to you, and the release of any funds may be put on hold.Different types of checks will take different lengths of time to clear. Local checks will be cleared faster than checks written outside of a bank's region. Business checks such as payroll checks are often processed electronically and clear much more quickly.
It's also important to take precautions when waiting for a check you've received to clear. Banks are required to make at least part of a deposit available to you or your business. However, that doesn't mean the actual money is there.
If a check bounces, you or your business may have to pay the money back to the bank. That can be a problem if you've already spent it.
When you have concerns about a check, wait until you're certain the check has cleared before you spend any of the funds. You may even contact your financial institution and ask if they are sure the check is good or if using the money would be risky.