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Positive pay is a must-have tool for businesses looking to protect themselves from check fraud. By matching check details with the bank before payment, it helps catch fraud early. In this post, we’ll break down how positive pay works, why it’s so effective, and when it makes sense to use. We’ll also touch on a few other fraud prevention methods, like reverse positive pay and ACH positive pay, and how they fit into a broader fraud protection strategy.

What is positive pay? 

Positive pay is an automated cash management system used by banks and businesses as a spend control tool to detect check fraud. It employs a “check-issue file” that is sent to the bank by a company to be used for matching check numbers, account numbers, issue dates, and dollar amounts. The idea is to catch fraud before the check is processed through the bank.

How positive pay works 

  1. Generate check-issue file: The company creates a file that includes key details of each check issued, such as check number, account number, date of issue, and amount.
  2. Send to bank: This check-issue file is sent electronically to the bank, which uses it as a reference for verifying checks as they are presented for payment.
  3. Verification process: When a check is presented (either in person or through a deposit), the bank compares the information from the check against the check-issue file.
  4. Match criteria: The bank checks the following:

  • Check number
  • Account number
  • Date of issue
  • Amount (In some cases, the payee’s name is also included.)

What if a check is flagged?

  1. Alert: If any of the check details do not match the records, the bank flags the check and notifies the company.
  2. Review: The company then reviews the flagged check to determine its legitimacy through a spend analysis.
  3. Approve or Deny: After reviewing the flagged check, the company informs the bank whether to approve or deny payment.

Other fraud detection methods

Reverse positive pay

Reverse positive pay is a fraud detection tool where the bank presents a list of checks that have been presented for payment to the company at the end of each day. The company reviews the list, comparing it with their internal records to verify the legitimacy of each check. The company must notify the bank of any fraudulent or unauthorized checks before they are processed.

ACH positive pay

ACH positive pay is a fraud prevention service that applies to Automated Clearing House (ACH) transactions. It allows businesses to set specific filters or approval criteria for ACH payments. When a transaction doesn’t match the predetermined criteria (e.g., the originator, account number, or transaction amount), the business is notified, and they can decide whether to approve or reject the transaction before it's processed.

Method When to Use Pros Cons
Positive Pay Best for businesses regularly issuing physical checks; prevents check fraud before processing.
  • Proactive fraud detection.
  • Automates check verification.
  • Reduces human error.
  • Requires regular file submission by the company.
  • Slightly complex to implement.
Reverse Positive Pay Ideal for businesses wanting more control over check payments by reviewing checks post-presentation.
  • Provides more control and flexibility in the check review process.
  • Allows review of all checks before they are processed.
  • Reactive rather than proactive.
  • Delays check clearance if the company is slow to respond.
ACH Positive Pay Suited for businesses making regular ACH transactions and wanting to prevent unauthorized debits or credits.
  • Reduces risk of unauthorized ACH transactions.
  • Customizable filters for enhanced security.
  • Can prevent significant losses from fraudulent ACH debits.
  • May require setup of complex filters.
  • Only covers ACH transactions, not checks.

Why you need more than just positive pay

It would be nice if we could simply issue startup corporate cards to all businesses and eliminate check writing completely, but that’s not how the world works. Clients often like to pay by check. Vendors sometimes require that they get paid by check. Landlords and lease agents like to have paper or digital checks for record keeping purposes.

 

Positive pay and reverse positive pay are useful tools for preventing check fraud, but neither of them can be counted on as foolproof. To help support both positive pay and reverse positive pay, companies should have a robust fraud protection system in place. This system should include tools that monitor check payments, credit card spending, expense reimbursement, and billing activities.  

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The Ramp team is comprised of subject matter experts who are dedicated to helping businesses of all sizes work smarter and faster.
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