Positive pay is an automated cash management service used by financial institutions to deter check fraud. Financial institutions 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 institution.
As identity thieves and fraudsters continue to alter checks or create and pass counterfeit checks, many financial institutions are campaigning for the adoption of positive pay services with their clients. Positive pay is offered to companies as a fraud prevention system to protect them against forged, altered and counterfeit checks.
There are a few different ways the service may work:
| Positive Pay |
Payee Positive Pay |
Reverse Positive Pay |
ACH Positive Pay |
Will automatically match each check presented against a list of issued checks provided by the company.
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Matches the Payee names from an issue file to the Payee names on the check.
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Financial institution will send a file of presented checks to a company and they will internally compare those to the items they have issued.
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A service allowing users to block and review all incoming debits or credits before they are authorized to post to an account. |
Generally, the service is utilized to protect against forged, altered and counterfeit checks. The service matches the check number, dollar amount and account number of each check presented against a list provided by the company. In some cases, the Payee may also be included on the list of checks. If these do not match, the financial institution will not clear the check and notify the company to receive a determination as to whether they should accept or reject the check. The financial institution may flag the check, notify a representative at the company and seek permission to clear the check. In addition, if the company finds a minor error, it may choose to advise the financial institution to clear the check. If the company forgets to send a list to the financial institution, all checks presented that should have been included may be rejected, which could cause some financial problems.
A variation of the positive pay concept is the reverse positive pay system. This system requires the issuer to monitor its checks on its own, making it the company’s responsibility to alert the financial institution to decline a check. The financial institution notifies the company daily about all presented checks and clears the checks approved by the company. Typically, if the company does not respond within a fairly short time, the financial institution will go ahead and post the check(s).
ACH Positive Pay allows account holders to manage and monitor ACH debits and credits that post to their account via filters and blocks. They can make decisions on ACH transactions before affecting the account, therefore, reducing the risk of potential fraud.
An EPCOR member recently shared with me that they had a business client utilizing positive pay that saved them from approximately 200 counterfeit checks. Mail was stolen from the business mailbox and the fraudster utilized the company's routing and account number to create the counterfeit checks. The checks were then given to money mules to negotiate over several weeks. Each check was caught via the positive pay system and returned within 24 hours. This saved the company and the financial institution from taking any loss and having to obtain a ton of Affidavit of Forgery forms.
I have also heard from various financial institutions that having a National Check Professional (NCP) on staff proves helpful when dealing with check fraud. Lots of financial institutions have lost their seasoned check personnel and struggle with what their options are when they are past the 24-hour return timeframe for a fraudulent item. Knowing what steps to take to try and recover a loss for your financial institution or one of your account holders is crucial as fraud cases continue to rise.
Our NCP Prep Program begins in January! Watch our informational video to learn more.