Uncollected Funds

Uncollected funds meaning refer to the portion of a Bank deposit that’s unavailable and comes from checkers, which are not yet cleared by the bank. The bank needs these uncollected funds to account for prior to releasing the withheld funds to the account holders.

You may have faced this situation many times when you are required to wait for your deposited check to clear, and the funds get transferred to your account. The time taken for the funds to get deposited may vary between 1-5 days, depending on the bank’s procedures and several other factors. Until then, the money is withheld, and this implies the “Uncollected funds meaning”.

Understanding Uncollected Funds

Before we get into the details, let’s understand the process of how a bank clears a check. In a typical check Deposition and clearance process, there are four parties involved.

• When the drawee deposits the check to his bank, it will contact the drawer’s bank to get approval for the check clearance.

• Next, the drawer’s bank will perform a status check to ensure there’s sufficient balance in the drawer’s account to initiate the check clearing process.

• If there are enough funds in the drawer’s bank, it will transfer the requisite check amount to the drawee’s bank. Until this time, the drawee won’t receive the money against the deposited check. In other words, the drawee’s bank account would not reflect the funds from the check deposit until then. This difference in the balance of the drawee’s bank is known as “uncollected funds”, which is also abbreviated as UF or UCF.

• After the confirmation is sent from the drawer’s bank to the drawee’s bank regarding the availability of the required balance in the former, the latter deposits the funds in the drawee’s account.

Hence, the uncollected funds are yet to be cleared and reconciled at the bank’s end, and are basically withheld until verification and confirmation are done by the drawer’s bank. This means that the drawee won’t be able to use the “uncollected” money until the bank clears the check.

Uncollected Funds Formula

It is calculated as the difference between total balance and the available balance of the current account or saving account.

Importance of Uncollected Funds

Uncollected funds can help businesses be on track and enhance their operational Efficiency. Besides, it also enables companies to improve their cash flows and follow more effective fund management strategies.

For example, a company may have numerous vendors whom they need to pay within a specific credit period. Additionally, businesses also receive payments for their customers or clients.

In this case, accounts payable and receivable play a huge role in managing the working Capital of the organization. In most cases, the payments are made as well as received via checks.

By having uncollected funds, the business can avoid using the working capital, which should not be affected due to any uncollected money. It may often result in the blockage of the funds, which may further hamper the core business operations.

Most importantly, uncollected funds help to protect banks and their consumers from numerous kinds of fraud activities. Without this uncollected money, spammers could have easily written a bad check on one bank account, and then deposit the said amount in another bank, and in the end, may simply steal the amount in hard cash!

An account holder can know the exact amount of pending payments due to uncleared funds by logging into their online banking accounts. S/he can also come back and check later whether the bank has cleared the funds and whether it’s the right time to spend the money.