What is positive pay?

Positive pay is a fraud prevention system used primarily by businesses to protect against check fraud. Instead of relying solely on the bank to verify checks presented for payment, positive pay requires the company to submit a file of check information (check number, amount, date, payee) to their bank before the checks are presented for payment. The bank then compares the company's submitted data to the checks it receives. Any discrepancies trigger an alert, allowing the company to investigate and prevent fraudulent payments.

Here's a breakdown of key aspects:

• How it works: The company creates a file containing details of all checks issued. This file is transmitted to the bank, usually electronically. When a check is presented for payment, the bank compares the information on the check to the information in the company's file. If there's a mismatch (e.g., different check number, amount, or payee), the bank flags the check and typically holds payment. The company then investigates the discrepancy to determine if it's a legitimate check or a fraudulent one.

• Types of Positive Pay: There are several variations, including:

  • Positive Pay Standard: This compares the entire check data (check number, amount, date, payee).
  • Positive Pay with Exception Reporting: Only discrepancies are reported to the company.
  • Positive Pay with Positive Pay File Return: The bank returns the complete file of checks processed, allowing the company to verify all checks.

• Benefits: Positive Pay significantly reduces the risk of check fraud by catching altered, counterfeit, or forged checks. This translates to:

  • Reduced financial losses: Prevents fraudulent payments from being processed.
  • Improved internal controls: Enhances the company's overall financial security.
  • Increased audit trail: Provides a detailed record of all checks issued and processed.

• Costs: Implementing positive pay involves software and potentially fees charged by the bank. The costs vary depending on the bank and the features included.

• Who benefits most? Businesses that write a high volume of checks or deal with large transaction values are the primary beneficiaries. However, any business can benefit from improved security and fraud protection.

• Limitations: While highly effective, positive pay isn't foolproof. Sophisticated fraud schemes may still find ways to bypass the system. It also requires diligent record-keeping and timely submission of check data to the bank.

In short, positive pay provides a robust layer of protection against check fraud, offering businesses a significant return on investment in terms of reduced financial losses and enhanced security.