Positive pay is a powerful automated anti-fraud tool that protects businesses and banks from unauthorized checks being paid. Banks use it to quickly analyze and match checks against a file submitted by the business to confirm the account number, check number, and check amount. If the check presented for payment matches the file exactly, it’s considered a positive match and the check is automatically paid. If the check does not match exactly, it’s considered an exception and moved to a queue, allowing the account holder to review it and decide if it will be paid or returned.
Returning a fraudulent item will prevent it from posting to the account and also prevent financial loss. I’ve had the opportunity to work on the operations side of positive pay for many years and witnessed countless fraudulent transactions being stopped cold before ever withdrawing a single penny from the business account.
Many banks have different levels of positive match points available. The basic match points are account number, check number, and check amount. Some financial institutions offer upgraded positive pay that will also confirm the payee. If this has been altered in any way, the check will be considered a mismatch and will be forwarded to an exception decision queue.
How Positive Pay Works for Businesses
Here are the steps involved for positive pay to work effectively:
Step 1: You Create a List of Your Checks to Be Included in Positive Pay
As checks are produced, a CSV file is generated by the business owner listing each check with three or four columns, depending on your bank’s criteria, such as account number, check number, check amount, and payee.
Step 2: You Upload Your Outstanding Check Report
Upload the CSV file so the bank will be aware of the new checks you created. Your portal will be mapped to match your file at setup so that the upload is quick and easy. Most positive pay sites will also allow you to hand key check details if you prefer not to generate a file or if you only have a few checks to add.
Step 3: The Bank Creates a List of Exceptions
The bank runs all presented checks as they arrive from the Federal Reserve and sifts out any that need to be reviewed. These checks are considered exceptions and sent to a review queue in the account holder’s online banking portal where they will await a decision to pay or return. Since the file includes a check image, it’s easier to confirm if alterations have been made to the original.
Step 4: You Decision the Presentments
Log into positive pay every morning before the bank cutoff to see if you have any presentments that need to be reviewed. Any checks showing in the exception queue will need to be verified against your accounting software to confirm they are legitimate. Once you decide to pay or return a check, you simply click a button to save your choice.
Step 5: The Bank Processes the Final Decisions
After the cutoff time passes at the bank, the decisions will be processed. Items marked to pay will be posted to the account automatically, and any item marked for return will be processed back through the Federal Reserve and returned to the financial institution that originally accepted it.
Should You Use Positive Pay?
My immediate answer would be yes, as I’ve witnessed the benefits of positive pay on many occasions. All businesses that put checks in the mail run the risk of having a check stolen, copied, or altered. Most business owners never think about positive pay unless they experience check fraud.
With the increase in mail theft and fraud in general, positive pay gives you an extra layer of protection keeping criminals away from your hard-earned dollars. Here are some of the most commonly used methods of check fraud:
- Check washing: Some fraudsters have mastered the art of check washing. This is where a check is flooded with chemicals that remove the original ink and allow new dates, payees, and amounts to be written in with virtually no damage to the paper.
- Online check orders: Often when a check is stolen, a criminal has all the information needed to order checks from an online printer. They end up receiving books of blank checks with your business name and account number to use as they please.
- Money mules: The money mule is a go-between, making finding the actual fraudster more difficult. These are individuals who knowingly or unknowingly are hired to move funds from one place to another. They are given funds or stolen checks and asked to deposit, cash, or move the funds to a specific place in return for monetary gain. Many participate without realizing they are involved in criminal activity.
U.S. Bank has a great program for fraud prevention called SinglePoint® Essentials Positive Pay. It’s an optional check-verification service that provides a daily list of exceptions with mismatches between presented and issued checks (including exceptions for multiple accounts and ACH-converted items). Visit U.S. Bank to learn more.
What Type of Accounts Can You Add Positive Pay To?
Every bank is a little different when it comes to positive pay; this is based on internal criteria and guidelines. In general, any business account you can write a check on is eligible for positive pay, meaning all business checking and money market accounts can be set up with this service.
Some business owners have multiple accounts they use daily under the positive pay security blanket. Examples of different account uses are:
- Bill pay
- Payroll
- Working capital
- Money market savings
- Income tax withholding
- Accounts payable
- Accounts receivable
- Reserve funds
Average Cost of Positive Pay
Positive pay is generally considered a treasury management service and is hosted on an upgraded version of online banking. Some financial institutions charge a flat rate to add this upgrade. I’ve seen this as low as $18 and as high as $50 monthly. Each bank sets its own fees when it comes to treasury management services; there may be one fee for access to the treasury management platform and a second fee for positive pay.
Other factors may affect the final cost. If you need multiple checking accounts monitored, the cost may be higher than monitoring just one account. Also, if you need additional seats added for employees who will assist with accounting, there may be a charge based on the number of users.
Is Closing an Account With Fraud Better Than Adding Positive Pay?
No, as keeping the account open is actually a better and more cost-effective choice. One of the benefits of positive pay is the ability to keep an account running despite having fraudulent activity on it; this will allow you to monitor everything that’s presented for payment. While closing the account would prevent fraudulent checks from clearing the account, doing so creates a list of other issues that need to be addressed.
Should you choose to close the account, you will need to be mindful of the following issues caused by closing an active business account.
Many outstanding checks could still be in circulation to pay legitimate invoices but would be returned with a CLOSED ACCOUNT stamp across them. All vendors must be personally contacted and new checks must be reissued from the new business account.
Monthly electronic transactions may be attached to this account, such as software subscriptions and membership fees. These would need to be changed to a new checking account to avoid interruptions in necessary business software applications.
Bank-ordered checks can take up to 10 days to arrive, which could create a payment gap. Some computer-generated checks with custom graphics or logos cost upwards of $500 per order. Shredding unused checks and reordering new checks can be costly and create days of downtime waiting for a new order to arrive.
Many corporations have debit cards assigned to individual employees or departments, and closing an account would shut down all active debit cards and could prevent necessary company purchases. This means debit cards will need to be replaced; some bank branches can create debit cards on site, while others are ordered with a 10- to 14-day turnaround time.
Payroll payments could be halted or delayed. Whether you print payroll checks or hire a service to issue payroll, closing the account could cause several issues. If the funding for payroll needs to be pulled by the payroll company, the automatic transaction will not process if the account is closed. Also, if you issue physical payroll checks, you will be unable to print them until a new check order is delivered with the new checking account number.
ACH transactions that pay vendors will not be processed if an account is closed. An accounting manager will need to re-key all ACH details in a new account profile to avoid ACH payment disruptions.
Keep reading:
Pros and Cons of Using Positive Pay
| PROS | CONS |
|---|---|
| Combats fraud and income loss | Means monthly fees may be charged (e.g., for enhanced fraud protection) |
| Enables you to keep accounts open even if they’ve had check fraud in the past | Requires you to remember to check the queue before the bank cutoff; otherwise, checks are auto-returned |
| Offers peace of mind | Requires you to log in on days your company may be closed (e.g., company holidays) to decision checks because the bank is open and processing checks as normal |
| Prevents checks from clearing that were not written by the company and instead created by fraudsters from clearing | Means a fraudulent check could still be processed if it’s stolen and cashed at a bank with a fake ID; it could clear since the check would not be altered in any way |
| Means less downtime mitigating fraud issues and losses | Requires you to upload files each time a check is written |
How to Set Up Positive Pay
Since positive pay is a treasury management service, it requires a special setup.
- When applying for general online banking, the bank basically matches the account number with the name and then activates the account for you.
- Applying for treasury services is a bit more involved. Since this is a business login, it’s custom-built based on the products you need access to. Generally, you will work directly with a treasury management representative to navigate through this part.
Once the upgraded online banking is active, it can be customized, and permissions are assigned based on your role in a company. Usually, you will complete a questionnaire to outline what permissions each user will require. Afterward, you will work with a treasury representative to confirm everyone has access to the online modules they need.
What Is Reverse Positive Pay?
Reverse positive pay is similar to positive pay with the exception of the file upload and the automatic return if a decision is not made. Reverse positive pay allows all checks to process and soft post to the account, and the account owner has 24 hours to review everything and return anything that appears to be fraudulent.
For many business owners, this is easier—especially if they don’t have accounting software that generates CSV files or primarily works from a mobile device. If decisions are not made with reverse positive pay, then all checks hard post to the account and are no longer able to be decisioned.
Frequently Asked Questions (FAQs)
Positive pay in banking is a treasury management service created to cut down on check fraud by cross-matching files against actual items presented. Business owners have a limited window of time to log in and return any items that are fraudulent.
Positive pay is added to business online banking. Each day, an assigned user from the business will upload any checks that are newly created and review any presentments to confirm they are all legitimate. A choice will be made to pay or return the items. The bank will review the decisions and move the checks to the appropriate location.
An exception is any check that is presented to the bank not matching up with the list of expected outstanding checks. Exceptions are put into a decision queue where they are reviewed. An exception that is paid will be posted to the account, while an exception that is returned will be processed back through the Federal Reserve and returned to the financial institution that originally accepted it.
Bottom Line
Positive pay is an innovative way to prevent check fraud by crossmatching known expected checks against actual presentments arriving at the branch. Any item that is not a positive match is considered an exception and is sent to a decision queue to be reviewed by the business owner. If a fraudulent check is presented, then the business owner will be able to return the check without allowing it to post to the account, thus preventing the fraudulent check from causing a financial loss.
