How Positive Pay Works

Payment fraud represents an ongoing risk for businesses. In 2023, 80% of organizations experienced attempted payment fraud, according to Association for Financial Professionals (AFP) research. Checks continued to be the most problematic payment method, with 65% of organizations reporting check fraud activity.

Even though check-writing is becoming less popular—check-processing volume at the Federal Reserve declined 8% over the last five years—AFP noted a 40% increase in check-related "suspicious activity reports" filed with the Financial Crimes Enforcement Network of the U.S. Treasury Bureau in the last three years.

Criminals are increasingly robbing mailboxes and even attacking postal carriers to steal the mail in their bags. There was an 87% increase in reports of high-volume theft from mailboxes between 2019 and 2022, according to the U.S. Postal Inspection Service. Many mail thieves are looking for checks, so they can use chemicals to wipe the writing off them and then rewrite them (and cash them) for large amounts of money.

 

What Is Positive Pay?

Positive Pay is a fraud mitigation service that provides early detection of fraudulent or altered checks. When banks offer Positive Pay, they verify checks that are presented for payment on a company’s account against the company’s check register on a daily basis. Positive Pay helps prevent unauthorized checks from being drawn on an account.

How Does Positive Pay Work?

Positive Pay is a relatively simple process that implements an external safeguard—a list of issued checks from the client company—to mitigate check fraud. When a participating company issues checks, it provides a list of disbursement details to its bank. The details could include items such as the check number, date, payee name and amount.

When a check drawn on that company’s account is presented for payment, the bank verifies the check against the company-provided details. If the details on the check match the information provided by the company, the bank will cash the check.

Typically, customers have a daily deadline for approving checks. If the customer does not respond by the deadline, they can implement a default decision for the bank to use.

The bank will also have a process for handling discrepancies, such as contacting the company for guidance or establishing an agreement to pay or reject those items.

Why Would a Business Use Positive Pay?

Positive Pay can protect a business from financial losses as a result of counterfeit or altered checks. Protecting your payments can help safeguard your cash flow and your bottom line. 

 

The Benefits of Using Positive Pay

Positive Pay can provide an additional layer of protection for an organization’s bank accounts. Even when organizations receive alerts like City National’s fraud text alerts, bad checks can fall through the cracks. But Positive Pay services can help stop fraudulent checks from going through.

In addition, Positive Pay allows businesses to retain control of their finances, providing the go-ahead for a bank to cash a check on their accounts rather than leaving it up to the bank. By controlling the check cashing process on your account, you can reduce the chance of losing money due to fraudulent checks.

It’s also beneficial that Positive Pay provides consistent monitoring of your bank account and a second set of eyes reviewing every transaction. And when the bank uncovers a discrepancy on a check drawn from your account, you’ll be alerted.