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Positive Pay Definition – What is Positive Payment?

What Is Positive Pay?

Positive PayPositive Pay is an automated risk management service.  It is used by financial institutions employed to deter check fraud. Banks use positive pay to match the checks a company issues with those it presents for payment. Any check considered suspect is sent back to the issuer for examination. The system acts as a form of insurance for a company against fraud, losses, and other liabilities to the bank. There is generally a charge incurred for using the system.  Although, some banks now offer the service for a reduced fee or free.

Positive pay is a fraud-prevention system offered by most commercial banks.  It is used by companies to protect against forged, altered, and counterfeit checks. Identity thieves often try to create and cash counterfeit checks. Bank fraud criminals will try to alter checks and try to cash them.  Companies usually provide a list to the bank of the check number, dollar amount, and account number of each check. The bank compares the list to the actual checks, flags any that do not match, and notifies the company. The company then tells the bank whether or not to cash the check.  In response, banking officials will do what the company requests.

In its simplest form, it is a service that matches the account number, check number, and dollar amount.  It matches each check presented for payment against a list of checks previously authorized and issued by the company. All three components of the check must match exactly or it will not pay.

Positive Pay – A Deeper Look

Positive Pay protects against forged, altered, and counterfeit checks.  The service matches the check number, dollar amount, and account numbers.  It compares this information against a list provided by the client company. In some cases, the payee may also be included in the list of verifiable information. If any information does not match, the bank will not clear the check. Without security systems in place, identity thieves and criminals can create counterfeit checks that may end up being honored.

Positive Pay Example

A positive payment system requires the company to transmit a file of issued checks.  This list is required by the bank each day checks are issued by the client. When those issued checks are presented for payment at the bank, they are compared electronically against the list of transmitted checks. The check-issue file sent to the bank contains the check number, account number, issue date, and dollar amount. Sometimes the payee name is included but may or may not be part of the matching service.

When a check is presented that does not have a “match” in the file, it becomes an “exception item”. The bank sends an image of the exception item to the client. The client reviews the image and instructs the bank to pay or return the check. There is generally a fee charged by the bank for Positive Pay.  However, some banks now offer the service for free. The fee might well be considered an “insurance premium” to help avoid check fraud losses and liability.


Positive Pay Advantages

There are many ways in which positive pay is a smart form of business banking. It simplifies the check cashing process, helps a business reduce errors, and saves on labor costs. Other key advantages include:

Check Verification

Every check presented for payment is automatically verified. This includes checks presented at all banking offices. Positive pay will prevent payment of duplicate checks and protect against lost or stolen checks too.

Fraud Control

Positive pay dramatically reduces the chances of check fraud. It’s like having a set of robotic eyes to look over everything. A business has the enhanced ability to identify and return fraudulent items, including payee name suspects. A bank works with a company to verify you have actually issued/received the checks posted to the account.

Check Issuer has Final Decision

Ultimately, the business always decides whether to accept the check or not. Clients have the final call. Online banking gives clients the ability to easily monitor and make decisions about exception items and upload issue information.


Where Positive Pay isn’t enough

Positive Pay is not perfect.  There are a few things to watch out for even with the service in place.

Over-the-counter fraud 

Some banks don’t offer over-the-counter verification, where tellers at a retail banking location can verify incoming checks at the banking counter, using your check file.  When instituting Positive Pay, make sure your bank verifies check information against all check-cashing scenarios, not just when checks are transmitted or scanned.

Payee verification 

Payee Positive Pay offers a higher level of fraud protection than traditional service. Traditional Positive Pay only includes comparing check numbers, dates, and amounts. Therefore, it does not include payee verification, to ensure the payee name has not been altered. Many banks provide Payee Positive Pay as an added feature to Positive Pay.  However, that may include additional fees. If you need payee verification, make sure that your software and your bank both support it.

File formats

There are several different transmission formats in which check data can be submitted to a bank. Not all banks use the same transmission format. And, some banks use different formats in different divisions. So, if your organization is programming Positive Pay as a DIY project, you may have to account for several different check file formats. Keeping up is easier if you implement Positive Pay through a third-party check writing package.  These packages produce check registers in the correct format for your banks.


Positive Pay vs. Reverse Positive Pay

A variation on the positive pay concept is reverse positive pay. This is where the bank sends information about its check acceptances to the company on a daily basis.  In effect, the bank only pays those checks that are approved by the company.  A reverse system requires the client to monitor its checks using its own resources and manpower.  As a result, a reverse system makes the client responsible to alert the bank whether or not to decline a check.  In practice, if the client does not approve the checks within a relatively short time frame, the bank will be compelled to pay the checks. Therefore, reverse positive pay is not as effective as positive pay.  Nevertheless, it is a cheaper alternative in the event a bank charges for the full service.

Final Words

In general, Positive Pay is a simple and effective way to prevent check fraud. It stops criminals from cashing fraudulent checks using stolen account numbers. It also catches altered checks where the amount has been changed or the check has an invalid date.  Positive Pay detects mismatches in check data, but it doesn’t identify when someone forges a signature on a stolen check.  Using the standard version without payee verification can allow checks to slip through.  This is because the bank is not verifying the payee’s name. Nevertheless, Positive Pay is a great way to institute check fraud protection.  It can stop bad payments, and reduce liability when dealing with fraudulent checks. But while Positive Pay is an effective way to catch check fraud, it is not foolproof.

The only time things can go wrong is if your company is failing to monitor the exception list (i.e. what the bank is rejecting). You must have someone assigned to the daily tasks of looking over anything that doesn’t go through. The biggest mistake to be made is allowing a fraudulent check to pass simply because no one got to the list that day. Still, the system enables a business to stay one step ahead of criminals and protect its cash flow. Implementing strategies today to ensure protection in the future means less room for error. It’s a fraud-protection system offered by most commercial banks to protect companies of any size and something to be seriously considered. (Source:


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