According to the National Check Fraud Center, fraudulent checks account for more than ten billion dollars of losses every year. This figure continues to increase steadily, presenting a major issue for both businesses and banks. Most fraudulent checking practices can usually be corrected or reversed; however, the effects of check fraud are still felt. Not only is reconciling check fraud incredibly time-consuming but there may also be other rippling effects. For example, if someone has fraudulently withdrawn from your account, this may cause legitimate checks to bounce and other financial repercussions. Therefore, it’s clear that businesses must take active measures to prevent check fraud.
To combat the pains of check fraud, the banking industry developed a check fraud prevention method known as positive pay. This innovative tool is essentially a “check” on the check-cashing process that makes cashing fraudulent checks significantly more difficult. Here at SmartPayables, we work hard to protect the financial security of our clients and make payment processing services, such as check printing and mailing, easier and more convenient. In this blog, we discuss the important things to know about positive pay and answer some of the most frequently asked questions about this effective “check” on check fraud.
What is Positive Pay?
Positive Pay is a fraud detection tool that attempts to match the most important components of a check with an already existing record. If one of these components does not match the information on the bank’s record, then the bank will refuse to cash the check. The cash management department offers positive pay and can be found in almost all modern commercial banks. Some of the check components that are monitored by positive pay include:
- Account number
- Check number
- Exact dollar amount
For example, if someone attempts to send you a $1,000 check in your name, your bank will need to confirm that such a check was issued before it releases any funds. This is why it doesn’t matter if the fraudulent check looks indistinguishable from a real one—if the funds have not been released, the check will be denied.
How Does Positive Pay Work?
Positive pay is used to prevent check fraud, identity theft, and other related crimes by providing the bank with a list of checks issued, which the bank uses to cross-reference. The bank’s process is to ensure that the checks being cashed match the information given to the bank by the issuing company. The dollar amount, check number, and sometimes even the name of the payee must match before the bank can cash the check. When the information doesn’t match, the bank sends the check back to the issuer to confirm the check’s authenticity, thereby preventing the fraudulent cashing of a check.
By implementing a few additional security checks through positive pay banking, successfully getting away with any of these crimes will be significantly more difficult. In order to ensure that the positive pay system actually works, your business will need to notify your bank every time a check has been issued. Many checking systems and check printing software can be set up to notify your bank automatically.
If you do, for some reason, fail to notify your bank that you are expecting a check to be cashed, that check will be denied — despite the lack of actual fraud. Because it is possible for positive pay to be over-corrective and reject non-fraudulent checks, it will be very important to make sure you are communicating with your bank on a regular basis.
How Does Positive Pay Prevent Check Fraud?
Once a check has been determined not to match the record, you’ll receive a notification, and the check will be temporarily held. Your bank will ask whether or not the check is legitimate and if it should be processed. If it’s legitimate, the bank will cash the check. If not, the bank will reject it and possibly even take action against the individual trying to cash it.
Typically, there will either be an initial fee for setting up a positive pay system or a small fee attached to each of the checks that are being cashed. Because of this, positive pay is a practice that is typically used by businesses rather than individuals. However, because positive pay has proven to be so beneficial, there are some banks that are now even offering this service without costs.
What Is Reverse Positive Pay?
Reverse positive pay refers to when a business or individual is responsible for confirming the legitimacy of the check. In a traditional positive pay system, the bank is responsible. However, some businesses or individuals may request to confirm the legitimacy of the check on their own. To meet these needs, banks developed reverse positive pay.
Whenever your business issues a check and it’s cashed, your bank will notify you and wait for approval. Instead of actively notifying the bank each time a check is issued, there will be a brief window where your business can view the check and assess its legitimacy. If your business does not take action during this window of time (usually a few days), the check will be cashed. Reverse positive pay typically costs less than ordinary positive pay, though some individuals consider the system to be less reliable.
How Can My Business Implement Positive Pay?
Creating and implementing a positive pay system is surprisingly easy. Usually, all your business needs to do is to contact your bank and inform them of your interest. From there, the bank takes care of the rest, including any associated fees.
If your business uses an outsourced payment processing firm, this team can assist in this process. Generally, setting up a positive pay system will take several business days, which means it’s important to plan in advance.
What Are Other Methods for Preventing Check Fraud?
Positive pay is one of the most popular and effective methods for preventing check fraud. However, there are additional steps your business can take to keep your check printing and processing secure. Here are a few actional steps to help you prevent check fraud:
- Avoid leaving blank spaces in checks.
- Avoid writing sensitive information (such as credit card numbers) on any issued checks.
- Use checks with special security features, such as blackout envelopes and thermochromatic ink).
- Update your checkbook whenever a check has been issued.
- Review your checkbook at the end of each week.
- Work with a professional outsourced payment processing firm.
What Is Positive Pay and How Does It Stop Check Fraud?
Even in our technologically advanced world, check fraud remains a prominent issue for all types of businesses. Fortunately, banks continue to develop methods for combatting check fraud to ensure the security of their clients. Your business can securely issue checks and maintain full financial control through positive pay and other innovative practices.
For more information about positive pay or online check printing services, visit SmartPayables or call us at 720-287-0030. We look forward to working with you and helping your business with all your financial solutions needs.
Founded in 2005, Smart Payables offers a full range of accounts payable payment solutions including outsourced check printing and mailing, document and statement printing and mailing, ACH direct deposits + more. Our highly experienced software developers and intelligent printing teams specialize in secure, enterprise-grade payment options that are HIPAA, SOC 1 Type 2, and ISO compliant. Our mission is to help businesses and large organizations implement secure, innovative technology that will reduce overhead and improve business operations and capabilities.