What it means
A cheque may appear as a credit before the paying bank has completed collection, and this timing difference is sometimes called float. A kiting scheme exploits it by creating overlapping cheque deposits that suggest more real funds than the accounts contain, and faster processing and holds reduce the opportunity but do not make every risk disappear.
A business may hold accounts at more than one bank for legitimate reasons, and transfers between them can be routine treasury work if real money funds each payment. The warning sign is the repeated use of unsettled cheque proceeds to cover other cheques before collection, so repeated circular payments with no outside funding merit review.
The practical harm is a false view of available cash, because a bank may extend provisional value and a business may spend it on suppliers or withdrawals. When cheques are returned, the apparent balance can vanish and the bank may have a loss, and other payments can then fail too.
A high volume of deposits relative to a collected balance is only a clue, not proof, since some legitimate businesses handle many cheques and keep low balances by sweeping cash. Review the source of funds, dates, related accounts and whether items ultimately clear, and avoid accusations based on one ratio.
Owners should distinguish ledger balance, available balance and collected funds. They should reconcile bank records promptly, examine transfers between related accounts and limit who can issue cheques.
An internal review should preserve transaction evidence and escalate concerns to appropriate finance and legal owners without assuming wrongdoing by a named employee. A cash shortfall requires a real financing or operating decision, and a bank facility, owner contribution, agreed supplier extension or reduced spending may be options, each with terms and costs.
Creating another unfunded cheque is not a source of new cash. Legal treatment depends on the jurisdiction and evidence, and this entry explains the financial pattern, not a universal charge or penalty.
Banks may restrict accounts or investigate suspicious activity under their own duties and applicable law, and managers should seek qualified advice on a real incident.
In practice
Real-world examples.
Example
A fictional business writes a cheque on an account lacking funds, deposits it at another bank and spends provisional credit before collection. A repeated circular pattern raises a kiting concern.
Example
A fictional business moves money from a funded account to another account for payroll. The genuine funds clear and the transfer has a documented reason; it is not kiting merely because two banks are involved.
Example
A fictional controller sees a spike in deposits from related accounts but little collected cash. She reconciles the items and asks treasury to explain timing before drawing a conclusion.
Formula
Calculation
There is no legitimate kiting formula. A screening measure is deposit turnover = Total deposits in a period / Average collected balance for that period, if the balance is positive and measured consistently.
Suppose a fictional account receives $900,000 of deposits in a month and holds an average collected balance of $15,000. The ratio is $900,000 / $15,000 = 60. It calls for context, not a finding of fraud: sales volume, planned cash sweeps and payment mix could explain it.
Review cheque flows between related accounts and whether the paying bank actually settled them. A zero or negative average balance makes the ratio unhelpful. Do not treat a provisional account credit as collected funds.Case study
Seen in the real world.
This entirely fictional case follows Cedar Interiors, whose owner faces a payroll shortfall. Cheques move between two company accounts, and a dashboard displays provisional deposit credits as though they were collected cash. The owner begins to plan payments from that number. A controller notices that several related-account cheques have not cleared. She reconciles each item, stops relying on the dashboard's available figure and asks the banks to confirm collected balances.
The company delays new discretionary spending and seeks lawful financing while the transactions are reviewed. This example does not assert a criminal outcome or blame from an unexplained pattern alone. It shows why timing and evidence matter: the company must know which cash is real before promising payment. Any suspected deliberate deception needs specialist review under the applicable law.
Watch out
Common mistakes.
- Treating provisional cheque credit as collected cash available for every payment.
- Calling any transfer between two bank accounts kiting without examining funding and intent.
- Using a deposit-to-balance ratio alone as proof instead of checking underlying transactions.
Questions
People also ask.
Is a bounced cheque the same as check kiting?
No. Kiting concerns a deceptive pattern exploiting clearing time; a returned cheque can have other causes. Review the facts and local law.
What can indicate a problem?
Repeated circular cheque deposits, fast withdrawals against provisional funds and a persistent gap between book and collected balances can warrant investigation.
What should a business do when cash is short?
Forecast the due dates and seek a real funding or payment arrangement. Unfunded cheques do not create cash and can make the problem worse.
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