Glossary term
Kiting
Kiting is a fraud that exploits the delay between a payment being credited and the actual funds being collected, often by moving checks or deposits between accounts without real money behind them.
Updated
Read time
What Is Kiting?
Kiting is a payment fraud that exploits the time gap between when a bank credits a deposit and when the money is actually collected. The classic version is check kiting, where someone writes checks between accounts that do not have sufficient funds, using the temporary credit from one account to cover another.
The scheme depends on float. Float is the short period when money appears available in one place even though the underlying funds have not truly settled. Kiting turns that timing gap into artificial balances.
Key Takeaways
- Kiting uses payment timing gaps to create the appearance of available funds.
- Check kiting is the best-known version, but similar timing abuse can appear in other payment systems.
- The scheme may involve multiple accounts, banks, deposits, and withdrawals.
- Kiting can expose banks, businesses, and account holders to losses when the payments fail.
- Modern clearing systems have reduced some float, but timing-based fraud risk still exists.
How Kiting Works
In a simple check-kiting scheme, a person writes a check from Account A even though Account A lacks enough funds. The check is deposited into Account B, where the bank may make some funds available before final collection. The person then uses those temporary funds or writes another check to keep the cycle going.
As long as deposits and withdrawals are timed carefully, the accounts may appear funded. The scheme collapses when the bank identifies the pattern, a check is returned, or the account holder cannot keep new deposits moving fast enough.
Kiting Signals Banks Watch
Signal | Why It Matters |
|---|---|
Repeated transfers between related accounts | The balances may be supported by circular movement rather than real funds. |
High deposit volume with returned items | The account may be using uncollected funds. |
Rapid withdrawals after deposits | Funds may be taken before final settlement. |
Multiple banks involved | The scheme may be exploiting different availability schedules. |
Balances that vanish after holds | Available funds may not reflect collected funds. |
Why Kiting Matters
Kiting matters because account balances can appear stronger than they are. A business using kiting may hide cash-flow stress, mislead lenders, or delay recognition of insolvency. An individual may create overdraft, returned-item, and legal problems.
For banks, the risk is that funds are released before the deposited item is actually good. Controls such as deposit holds, account monitoring, returned-item review, and transaction-pattern analysis help reduce that exposure.
Kiting can also distort financial reporting. If a business relies on uncollected deposits to show cash that is not truly available, managers, lenders, and vendors may make decisions based on a misleading liquidity picture.
The Bottom Line
Kiting uses payment timing to make unavailable funds look available. It is a fraud built on float, and it can quickly become a bank, business, or legal problem when the circular movement stops.