What is Positive Pay? A Guide for Business Owners

positive pay payment systemAccording to the National Check Fraud Center, fraudulent checks account for more than $10 billion of losses per year. This figure has been steadily increasing, presenting a major problem for both businesses and banks alike.

While fraudulent checking practices can usually be undone or corrected, they are still certainly something that all businesses will need to take active measures to prevent. Not only is reconciling fraud incredibly time-consuming, but there may also be other rippling effects that result from fraud as well. For example, if someone has fraudulently withdrawn from your account, this may cause your legitimate checks outstanding to bounce—something that is both costly and potentially Positive Pay is an automated fraud detection tool offered by the Cash Management Department of most banks.

Because of the pains caused by check fraud, the banking industry has been actively looking for ways to protect its clients. By being proactive and trying to combat fraudulent checking before it has actually been processed, your business can continue operating smoothly and avoid having any unwanted financial surprises.

One of the most popular methods of check fraud prevention is a practice known as Positive Pay. Positive Pay is an innovative “check” on the check cashing process that makes cashing fraudulent checks significantly more difficult. In this article, we will discuss the most important things to know about positive pay and also attempt to answer some of the many questions you may have.

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 what is on the bank’s record, then the bank will refuse to cash the check. Positive pay is offered by the cash management department and can be found in almost all modern, commercial banks.

The components of the check that positive pay monitors include the account number, the check number, the exact dollar amount, and various others. If someone attempts to cash a check in your name for $1,000, for example, your bank will need to confirm that such a check was actually issued before it releases the necessary funds. Because of this, it will not matter if the fraudulent check looks indistinguishable from a real check your business would use—if the funds have not been positively released, the check will be outright denied.

How does Positive Pay Work?

Positive pay is used to prevent check fraud, identity theft, and other related crimes. By implementing a few additional security checks, successfully getting away with any of these crimes will be significantly more difficult.

In order to make sure 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 to not match the record, the check will be temporarily held and you will be immediately notified by your bank. Your bank will frankly ask you whether or not the check is legitimate and if it should be cashed. If it is a legitimate check, the bank will cash it and proceed as it normally would. If it is not a legitimate check, the bank will reject it and possibly even take action against the individual trying to cash it (depending on the situation).

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 offering this service without costs.

What is Reverse Positive Pay?

Reverse Positive Pay is when the business or individual is responsible for confirming the legitimacy of the check. With a traditional positive pay system, the bank will be the one that is responsible. However, some businesses and individuals prefer to confirm the legitimacy of the check on their own. In response, some banks now offer a system called reverse positive pay.

Whenever a check issued by your business has been cashed, your bank will notify you and wait for your approval. This system does not require you to actively notify the bank every time a check has been issued. Instead, there will be a brief window where your business will be able to view the check and determine its legitimacy. If your business does not take action while this window (usually a few days) is open, then 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. The difference between positive pay and reverse positive pay is that the

How can my Business Implement a Positive Pay System?

Creating a positive pay system is something that is surprisingly easy. Usually, all your business will need to do is contact your bank and tell them that you are interested in. From there, the bank should be able to inform of you of all associated fees and necessary steps.

If your company currently uses an outsourced payment processing firm, they may also be able to help you set up a positive pay system as well. Setting up a positive pay system will usually take several business days, so it will be important for you to be patient and plan in advance.

What are other actionable steps my business can take to prevent check fraud?

In the modern era, positive pay is one of the most popular methods for preventing check fraud. However, there are also quite a few other actions your business can take as well.

  • Avoid leaving blank spaces in any checks
  • Issue checks that have special security features (thermochromatic ink, blackout envelopes, etc.)
  • Actively update your checkbook whenever a check has been issued
  • Reconcile your checkbook at the end of each week
  • Avoid writing valuable information—such as credit card numbers—on any issued check
  • Use a professional payment processing service

In order to stay on top of your finances, it will be crucial that your business is proactive, rather than reactive. Each of these simple, yet important, steps can make a major difference.

Conclusion – Positive Pay

Even in a highly digitized world, check fraud remains an active issue for businesses everywhere. Fortunately, banks are finding many ways to combat check fraud and keep their clients secure. Through the use of positive pay and other innovative practices, your business can securely issue checks and maintain control of finances. For more information on Positive Pay or online check printing services visit https://www.smartpayables.com/ or call (720) 287-0030.

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.

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