Positive pay: Why do you need it?

Understanding the Concept of Positive Pay

Positive pay is a service offered by financial institutions that detects fraudulent checks. The checks companies issue will be matched with the one presented for payment. If the checks seem suspicious of fraud, they are returned to the issuer for review.

A check not suspicious of fraud and not flagged by the financial institution is cashed with a statement, 'this check clears positive pay'. Positive pay is a feature offered for free by a few banks, but others charge extra fees for the service.

Positive Pay – How it Works?

Positive pay s a two-step process, which involves sending information to the bank and comparing the data between the presented check and the payment information.

Sending information to the Bank

Companies send a report of all the checks issued recently, including dates, check numbers, and amounts of all checks. A few companies also submit the payee's name to prevent any alteration in the payee's name.

Comparing presented checks and payment information

The check received at a bank will be compared with the previous one to ensure the information on both checks is a match. If the information from both checks doesn't match, the bank will notify the company about the discrepancy.

What is Reverse Positive Pay?

Reverse positive pay is another type of positive pay. In this system, the issuer monitors checks and alerts the bank to decline a check. It is the responsibility of a company to self-monitor its checks. The bank notifies of all presented checks on a daily basis, and it has to be approved for clearance. If the bank does not receive any responses on the checks immediately, they are cashed.

Additionally, any checks can be declined if the bank is instructed to. Reverse positive pay is a complicated and riskier service than positive pay. Businesses have to be on alert all the time to avoid any check fraud with reverse positive pay. On the other hand, the banks examine the information on the checks in positive pay.

Key advantages of Positive Pay

Verification: All checks undergo a review process and get automatically verified. Positive pay prevents cashing of checks that have been stolen or lost and of duplicate checks. The checks that have been cleared positive pay will be stored in a file that can be used for reference by the bank to eliminate any chances of fraud.

Additional layer of protection: Businesses may not have time to cross-check with each check that has been issued. Hence, it may increase the chances of check fraud.

Fraud control: Positive pay helps in reducing the chances of check fraud. It increases the security of businesses from any possible fraud scenarios.

Conclusion

Businesses can utilize the Positive pay service from banks, which can help in eliminating a majority of check fraud scenarios. Positive pay may fail only if the businesses skip monitoring the checklist and send them to the bank. Getting rid of fraudulent checks will only cost banks the time spent reviewing the list of checks. Implementing a system like this should be considered essential for any business looking to stay ahead of the curve regarding security and safety when it comes to online transactions.