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Escheatment is the legal process that hands unclaimed money and property over to a state government after the rightful owner has had no contact with the business holding it for a set number of years. For accounts payable, the property that escheats is almost always an uncashed vendor check or a stale credit balance. Once a check sits outstanding past your state's dormancy period, usually one to five years, your company has to try to reach the payee, then report and remit the funds to the state.
What is escheatment?
Escheatment is the transfer of unclaimed financial assets from the company that holds them to the state, once the owner is presumed to have abandoned them. Your business does not get to keep an uncashed check or an unused vendor credit as income. Instead you act as a custodian, called the holder, until the state's waiting period runs out. At that point the property is presumed abandoned and belongs to the state, which safeguards it and lets the owner reclaim it later. Every US state and the District of Columbia has an unclaimed property law, and most follow a version of the Uniform Unclaimed Property Act, so the framework is similar across the country even though the details differ.
How does the escheatment process work?
Escheatment runs on an annual cycle that AP and treasury manage together. The core steps are the same in most states:
| Step | What happens |
|---|---|
| 1. Identify the property | You review the general ledger and outstanding check register for checks and credits that have gone unclaimed. |
| 2. Apply the dormancy period | Each property type has a dormancy window. The clock starts on the check date or the last owner contact. |
| 3. Perform due diligence | Before reporting, you mail the owner at their last known address to try to return the funds. |
| 4. Report and remit | You file an unclaimed property report and send the funds to the state, usually once a year by a fixed deadline. |
| 5. Keep records | You retain the reports and supporting detail, typically for ten years, in case of an audit. |
The reporting state is usually the one shown in the payee's last known address. If you have no valid address on file, the property generally escheats to your state of incorporation instead, which is why clean vendor records matter.
How long is the dormancy period for outstanding checks?
The dormancy period is the number of years an item must sit unclaimed before it is presumed abandoned. It varies by property type and by state, but vendor and payroll checks tend to carry shorter windows than dormant accounts:
| Property type | Typical dormancy period |
|---|---|
| Payroll and wage checks | 1 to 3 years |
| Vendor and accounts payable checks | 3 to 5 years |
| Vendor credit balances and refunds | 3 to 5 years |
| Customer credit balances | 3 to 5 years |
Always confirm the period against the specific state's rules, because the ranges above are typical, not universal. A few states treat some business-to-business credits as exempt, but you cannot assume an exemption applies. When in doubt, track the item and report it rather than write it back into income.
What is escheatment due diligence?
Due diligence is the required effort to return unclaimed property to its owner before you remit it to the state. In practice it means sending a due diligence letter to the payee at their last known address, telling them the funds exist and how to claim them, before the reporting deadline. Most states require this outreach when the item exceeds a small dollar threshold, and the letter usually has to go out within a set window, often 60 to 180 days before the report is filed. Skipping due diligence, or doing it late, is one of the most common findings in an unclaimed property audit.
What happens to uncashed vendor checks?
An uncashed vendor check does not simply disappear or become your money. It stays a liability on your books as an outstanding check, and once it passes the state's dormancy period it becomes reportable unclaimed property. You should never void a stale vendor check and quietly move it to income, a practice sometimes called writing off stale checks, because that money still belongs to the vendor and then the state. The correct path is to keep the item on the outstanding list, attempt to reissue or contact the vendor, and if it stays unclaimed, run it through due diligence and escheat it.
Do businesses have to report unclaimed property?
Yes. Reporting and remitting unclaimed property is a legal obligation in every state, not an optional courtesy. Companies act as holders of the property and must file an annual report and turn the funds over once the dormancy period ends. States enforce this with audits that can reach back many years, and holders who never filed carry the most exposure because interest and penalties accrue on unreported balances. Voluntary compliance, filing accurately each year, is far cheaper than being found in an audit.
How can accounts payable reduce escheatment risk?
The best defense is fewer outstanding checks in the first place. Paying vendors electronically removes most stale-check risk, because an ACH vendor payment either settles or fails, it does not sit uncashed in a drawer for years. Keeping vendor names, addresses, and tax details current means any check you do issue has a valid payee to reach during due diligence. Reconciling promptly helps too: when you close the books each period you can turn the bank statement into a clean spreadsheet and match it against your issued-check list to surface every payment that never cleared. Tightening the same controls that catch duplicate invoices and stop check fraud also keeps your outstanding-check register accurate, so nothing slips toward escheatment unnoticed. Moving payments and vendor records into vendor payment software gives you one current list to monitor instead of a pile of paper checks.
The bottom line
Escheatment is the state's claim on money your business holds but never delivered, most often an uncashed vendor or payroll check. Track outstanding items, apply the right dormancy period, send due diligence letters on time, and file an annual report. Pay electronically and keep vendor records clean, and you will have far less that ever reaches the state in the first place.