Positive Pay is a banking service that assists business owners in protecting themselves from fraudulent check that is placed on their accounts. You provide your bank information for each check you write, and the bank confirms that your information matches the information on the checks submitted to it before processing the payment. If there are any discrepancies, your bank reports them and provides them to you for examination. You can then choose whether to accept or deny the payment.
Here’s a closer look at how the Positive Pay system works in the bank and why you should consider using it for your business.
What is Positive Pay?
Positive pay is a well-known automated cash service that can assist a bank in detecting fraud by comparing the company’s issued check to the check presented for payment. If the dollar amount, check number, and account number do not match, the check is detected and returned to the issuer for inspection.
If the sentence “this check clears positive pay” appears on your cashed check, it means that your check has been validated as safe to pay.
The positive pay system in the bank protects an organization against losses, fraud, and other risks. In most cases, there is a fee for using the service, while some institutions now provide it for free.
What Is the Process of Positive Pay?
A positive pay system analyzes specific check data against a list provided by the company prior to processing to safeguard a business against changed, forged, or counterfeit checks. This includes details such as:
- Monetary value
- Number of the check
- Date
- Number of the account
The payee is sometimes put on the list as well. If any of the data does not match, the check will not be cleared by the bank. These kinds of security checks are essential to ensure that a corporation never accepts counterfeit checks that fall through the gaps. It’s a method of automating your accountant’s vision.
When the information does not match and the check is refused, the bank sends an exception report to the consumer. It will delay payment until the company notifies the bank whether the transaction should be accepted or rejected. The bank may also take the following actions:
- Mark the check
- Notify a corporate representative.
- Seek approval to clear the check.
If there is simply a little error or difficulty, the business might instruct the bank to clear the check. If your organization fails to deliver a list to the bank, any checks that should have been included may be refused. So be cautious.
Positive Pay Stages
The fundamental positive pay steps are listed below.
Step 1: Send Data to the Bank
The issuing corporation transmits a file to its bank on a regular basis that contains the check numbers, dates, and amounts of all checks issued in the most recent check run. Some banks additionally accept files from submitting companies that include the payee’s name for each check, which should prevent someone from fraudulently changing the payee’s name and having the payee issue payment to the altered entity.
Step 2: Match the presented checks to the payment information.
When a check is presented for payment to the bank, the bank teller compares the information on the check to the information given by the company. If there is an error, the bank holds the check and tells the company.
Positive Pay Aspects
Without security checks, such as the positive pay system, a company’s money is vulnerable to fraudsters and identity thieves who can generate counterfeit checks. The Positive Pay system ensures that the check is not honoured if it does not match the correct identifying information that the bank has on a check.
If a check does not match the account number, dollar amount, or check number on the check, the bank has the option to flag the check, alert a business representative from your firm, and seek permission to clear the check if it is valid. The payee name is sometimes included in the system, although it is not usually part of the check matching function.
While Positive Pay typically has a price for businesses, most feel the technology to be well worth the expense in order to defend against check fraud and financial losses.
Files are transmitted every day.
Once you understand how it works, the Positive Pay system is simple to utilize. When your business issues checks, you must send a list to the bank that includes the check numbers, issue dates, and dollar amounts of the checks. When it comes to transmitting files, each bank has different format requirements, so be sure to check with your bank.
Items of Note
When a check is delivered to a bank and there is no “match” in the sent file, it is referred to as an “exception item.” When an exception item is discovered, the bank will call the customer, who will then analyze the check and order the bank to accept or deny it.
Every day, the client receives any checks that have been returned as suspicious. The corporation can then make their decision to the bank the same day. Companies can save hundreds, thousands, or even millions of dollars in financial losses due to fraud by spotting illegal checks before they clear in your account.
Defending Against Check and Electronic Payment Fraud
A positive pay system is a clever kind of business banking in a variety of ways. It streamlines the check cashing process, reduces errors, and saves a business on labour. Other significant benefits include:
Check Verification
A positive paycheck is one that has undergone the positive pay review process.
Every check presented for payment is validated automatically. Checks presented at any banking office are included. Positive pay prevents the payment of duplicate checks and protects against lost or stolen checks.
Positive paychecks may be included in a positive pay file, which is a collection of checks written by an organization during a certain time period. This file is delivered to the bank of an organization, where all checks can be verified at once for a faster cash-out. Each check number and money amount will be compared against each cashed check by the bank.
Definition of Positive Pay Exceptions
The pay review procedure can “fail” for non-fraudulent reasons. For example, a business may send a file of issued checks to its bank for inspection, only to have a check presented that does not have a “match” in the file. The check that does not match is labelled as an “exception item,” and the corporation simply sends an image or fax of the exception item to the client.
After reviewing the exception item, the customer will either authorize it for payment or instruct the bank to return the check.
Control of Fraud
Positive pay significantly minimizes the likelihood of check fraud. It’s as if you have a set of robotic eyes watching over everything. A business’s capacity to detect and refund counterfeit things, including payee name suspects, has improved. A bank collaborates with a company to ensure that the checks posted to the account were genuinely issued/received.
It is always your choice.
Ultimately, the business determines whether or not to accept the check. You have the final say on whether or not to accept positive pay. Online banking enables a brand to simply monitor and make judgments on exception items, as well as upload issue information.
What Is the Cost of Positive Pay?
Some banks (such as Chase) provide the pay services for free with certain business banking accounts. Other financial institutions levy monthly fees, per-item costs, or a combination of the two.
Here’s an example of three banks’ Positive Pay programs:
| Plumas Bank | Capitol Federal | First Premier | |
| Monthly Positive Pay fee (per account) | $50 | $25 | $40 |
| Issued check fee (per check) | $0 | 3 cents | $0 |
| Payee matching fee (per item) | $0 | 2 cents | 5 cents |
How to Avoid Receiving Positive Pay
When a corporation chooses to use ACH payments to make electronic payments, it eliminates the need for positive pay because checks are no longer employed as the payment basis.
Possibilities for Positive Pay
Several issues have been raised in relation to the positive pay scheme. First, if the company forgets to send a file to the bank, the bank may reject any checks that should have been included in that file. Second, all miscellaneous check transactions, such as manual checks, should be included in the file so that the bank knows what to do when these items are presented for payment. Third, if a check is cut and taken directly to the bank, it may arrive at the bank teller before the corresponding file is transmitted to the bank at the end of the day, potentially resulting in a rejected check. Finally, the positive pay system essentially shields banks from responsibility while charging businesses for this service. Despite these concerns, positive pay can be used to check fraud in certain scenarios.
The Benefits and Drawbacks of Positive Pay
Pros
- Effective anti-fraud tool
Cons
- Work on the part of the business owner is required.
- If you miss the review deadline, the bank returns the products.
Pros Explained
Effective fraud-prevention tool:
Positive Pay can be an excellent approach for businesses to secure their bank accounts from fraud, counterfeit checks, and other liabilities. Consider it an additional layer of security for your business. It’s not ideal, but it’s a start.
Cons Explained
#1. Work on the part of the business owner is required:
When you write a check, you must provide the bank with the information it needs to confirm the check, either manually or by uploading a file. Although this could take only a few seconds, it still necessitates more labour on the part of the business.
#2. If you miss the review date, the bank will return your items:
The main issue with Positive Pay is that you must usually notify the bank the same day—sometimes by 12 p.m. or 4 p.m.—if you want them to return or process flagged items. If you miss the deadline, your bank will normally return the things, which may cause financial problems or slowdowns for your business.
Positive Pay vs. Reverse Positive Pay
Reverse positive pay is another type of positive pay. This system necessitates that the issuer self-monitor checks. As a result, it is the company’s responsibility to notify the bank that a check has been declined.
The bank will tell you daily about all presented checks and will clear the checks that are approved during this process. If your business does not react to the bank within a reasonable amount of time, the bank will cash the check.
Alternatively, the bank will deny any request you make. Just keep in mind that this method is far riskier than the automated positive pay process.
To summarize
Positive pay can only go wrong if your organization fails to manage the exemption list (i.e. what the bank is rejecting). Someone must be assigned the daily responsibility of reviewing everything that does not pass muster. The most common error is allowing a bogus check to pass simply because no one checked the list that day.
Positive pay allows a business to stay one step ahead of fraudsters while also protecting its cash flow. Implementing steps today to secure future protection leaves less space for error. It is a fraud-prevention system supplied by most commercial banks to safeguard businesses of all sizes, and it should be seriously studied.
Positive Pay FAQs
What is included in a positive pay file?
A positive pay file is a list of checks written by your organization within the specified time period. The information is sent to your financial institution, which uses the list to ensure that checks are valid for cash. The check number and money amount are compared to the cashed check by the bank.
Who uses positive pay?
It is a cash-management solution used by financial institutions to prevent check fraud. Positive pay is a method used by banks to match checks issued by a company with those presented for payment.
Is positive pay necessary?
Positive pay is a straightforward but efficient method of preventing check fraud. It prevents crooks from using stolen account numbers to cash phoney checks. It also detects faulty checks in which the check amount has been changed or the check has an incorrect date.
