Post dated check definition
/What is a Post Dated Check?
A post dated check is a check on which the issuer has stated a date later than the current date. It is used when the issuer wants to delay payment to the recipient, while the recipient may accept it simply because the check represents a firm date on which it will be able to deposit the check. This situation represents a risk to the check recipient, since the passage of time may result in there being no cash left in the issuer's bank account to be used to pay the amount listed on the check when it is eventually presented to the bank for payment. A post dated check is also used when the recipient requires the issuer to hand over a set of post dated checks to cover a series of future payments, which the recipient agrees to cash on the specified dates. This approach is used to improve the odds of being paid, especially when the issuer has little credit.
When Post Dated Checks Are Used
Here are five cases in which it makes sense to issue a post-dated check:
Rent payments. Tenants sometimes issue post-dated checks to landlords for future rent payments, ensuring timely payments while coordinating with their payday schedule. This arrangement helps both parties manage cash flow and provides the landlord with a sense of payment security.
Installment payments for large purchases. When buying high-value items like appliances, furniture, or electronics, a buyer might issue a series of post-dated checks as part of an installment plan. This approach allows the buyer to spread out payments while giving the seller a reliable payment schedule.
Debt repayment agreements. If someone owes a personal loan to a friend or family member, they might use post-dated checks to fulfill a repayment plan. This method demonstrates commitment to repaying the debt and helps both parties keep track of payments.
Business contracts and services. Businesses sometimes issue post-dated checks to contractors or suppliers for services to be rendered in the future. This practice can help manage cash flow and ensure that payments align with project completion or delivery timelines.
Managing insufficient funds temporarily. If a person expects to have insufficient funds in their account until a future date (such as a paycheck deposit), they might issue a post-dated check to ensure it won’t be cashed prematurely, avoiding overdraft fees or bounced checks.
In these cases, post-dated checks serve as a practical tool for managing payments, aligning cash flow, and providing assurance to the recipient.
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Is it Illegal to Post Date a Check?
It is not illegal to post date a check when you expect to have adequate funds in your bank account to support the check when it is eventually cashed. However, if your intent is to defraud the check recipient, then post dating a check may be illegal, depending on the applicable state laws.
For example, Henry issues a $500 post dated check to Susan, with instructions to cash it in one month, after he receives an inheritance, which he has been told will be paid into his account several days before the date he stated on the check to Susan. The inheritance payment does not arrive on time, so the check bounces. Since Henry’s intent at the time of writing the check was not to defraud Susan, writing the check was not illegal. Conversely, if he did intent to defraud Susan at the time of writing the check, then doing so would have been illegal.
Accounting for a Post Dated Check
From the perspective of the check issuer, there should be no journal entry to record the reduction in cash until the date listed on the check. From the perspective of the recipient, there should be no entry to record the increase in cash until the date listed on the check. Thus, the date on the check effectively postpones the underlying accounting transaction.
Example of a Post Dated Check
ABC International receives a $500 check payment from a customer for an unpaid invoice on April 30. The check is post dated to May 15. ABC should not record the cash receipt until May 15, nor should it reduce the related accounts receivable balance until May 15. Thus, the post dated check has no impact on the financial statements of ABC International until the date listed on the check.
Practical Use of a Post Dated Check
Realistically, the recipient of a post dated check may never notice that the check has been post dated, and so will record and deposit it at once. The bank is also unlikely to notice the date on the check, and in any case may have a policy of honoring all checks at once, irrespective of the check date. In this situation, the check is considered a negotiable instrument, irrespective of the date, and it is likely that the recipient will receive cash from the bank prior to the date on the check. In such a situation, it is allowable for the check recipient to record a post dated check upon receipt of the check.
From the perspective of the payer, the best way to ensure that funds are not released early is to notify the bank not to release funds against this check any earlier than the date stated on the check.
Auditor Treatment of Post Dated Checks
Auditors do not like to see post dated checks, since it implies that the payer is short on cash, and is attempting to pay bills later than it should. If an auditor sees an ongoing pattern of check post dating, there would be an inclination to delve more deeply into company finances, and perhaps state a going concern issue in the auditor's opinion that accompanies the financial statements.