Positive Pay: How Banks Help Prevent Check Fraud

Positive Pay is a bank-provided fraud detection service that helps businesses protect their accounts from counterfeit, forged, and altered checks. Companies submit details of checks they issue, and the bank matches presented checks against that list before honoring them.

How Positive Pay Works (Step by step)

1. Enroll in the bank’s Positive Pay program.
2. Submit a positive pay file — a list of issued checks that includes check numbers, dates, payees, amounts, and the originating account.
3. When a check is presented for payment, the bank cross-references it against the submitted list.
4. Matching items are processed normally.
5. Non-matching checks are flagged as exception items and held for review.
6. The bank notifies the company with details of exceptions; the company instructs the bank to pay or return the check.

Note: If a company fails to submit its check list or misses a response window for exceptions, legitimate checks could be rejected or unauthorized ones could be paid. Review your bank’s terms carefully.

Reverse Positive Pay (How it differs)

• Reverse Positive Pay flips the workflow: the bank sends a daily list of checks presented for payment, and the company must approve which to pay.
• It is typically cheaper than standard Positive Pay but places more monitoring burden on the issuer and can be less secure if responses are delayed.

What a Positive Pay File Includes

• Check number
• Issue date
• Payee name (optional but helpful)
• Dollar amount
• Account number (if required by the bank)

Benefits

• Strong deterrent against forged, altered, and counterfeit checks.
• May extend to ACH debit verification depending on the bank.
• Reduces the need to close compromised accounts after fraud.
• Gives companies greater control over which items clear their accounts.

Drawbacks

• Time and administrative effort to prepare and maintain file submissions and to respond to exceptions.
• Potential cost: banks may charge per item, per exception, or a monthly fee; some banks include it free for certain account types.
• Risk of missed deadlines leading to undesired outcomes (checks paid or returned).

Costs and Fee Structures

Fee models vary by bank and client relationship:
– Per-item charges for verification or exceptions
– Monthly service fee (sometimes with transaction limits)
– Payee-matching or issued-check fees
Ask your bank for specifics and any limits or additional charges.

Effectiveness and Context

• Despite fewer checks in circulation due to digital payments, check fraud remains a real threat for businesses that still use checks.
• Positive Pay significantly reduces the risk of losses from fraudulent checks by ensuring checks presented agree with the issuer’s records.

Quick FAQs

• Who should use Positive Pay? Businesses or organizations that issue checks regularly and want to reduce fraud risk.
• How often do I submit check data? Frequency depends on your bank—daily electronic uploads are common.
• What happens if I miss a response to an exception? Banks often have a limited response window; if you miss it they may pay or return the item per their policy.
• Does Positive Pay cover ACH transactions? Some banks offer ACH verification under the same or a related service, but confirm availability and cost.

Bottom Line

Positive Pay is a practical and effective fraud prevention tool for businesses that issue checks. It requires some administrative effort and may involve fees, but it offers meaningful protection against costly check fraud and helps maintain control over disbursements. Consult your bank to understand enrollment, file-format requirements, response timelines, and pricing so you can decide whether Positive Pay fits your risk-management strategy.