June 9, 2022

Positive pay is not a complete fraud prevention system

Jump to sections
Spending made smarter
Easy-to-use cards, spend limits, approval flows, vendor payments —plus an average savings of 3.5%.
Get fresh finance insights, monthly
Time and money-saving tips,
straight to your inbox
Thanks for signing up
Oops! Something went wrong while submitting the form.

Technological advances have made online banking more convenient for consumers and businesses. The passing of the Check 21 Act in 2003 made much of that possible. It gave banks the ability to clear more checks faster than ever before, including digital image checks. That’s a convenience, but it also exposes companies and individuals to potential fraud. One of the tools used to prevent that fraud is a system called “positive pay.” In this article, we'll detail exactly what positive pay is and why, while important, it's an imperfect system.


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.


This system is particularly useful for digital check images that consumers have scanned on their mobile device. One of the more common forms of fraud is the presentation of these check images at more than one location or on numerous occasions. The check-issue file will show the bank when a check has already been processed, resulting in a denial of redundant efforts.


Though effective, positive pay is not a panacea for preventing check fraud. The Patriot Act of 2001 includes KYB and KYC regulations for banks and private enterprises to verify the identities of financial account holders and vet the provenance of business clients and customers. This aids in the enforcement of penalties when cases of check fraud are detected.


How positive pay works 

Positive pay requires a commitment to more effective spend management. The check-issue file is generated by the company. It’s then sent to the bank electronically to be used for verification as checks are presented for payment. Think of it as a matching system. When a check is presented at the counter or comes through in a deposit, the bank will match:

  • Check number
  • Account number
  • Date of issue
  • Amount        

Some check-issue files also contain the payee’s name, but not all. If any of this information does not match, the check will be flagged, and the company will be notified. The appropriate parties at the company will then do a spend analysis to determine if the check is legitimate, at which point they can notify the bank whether to approve or deny payment.


Reverse positive pay versus positive pay 

With reverse positive pay, the onus is on the company, not the bank, to detect fraudulent checks. Instead of the company sending the bank a check-issue file, the bank sends the company a daily list of checks presented for payment. The company then checks that list against their own records and notifies the bank to approve or deny payment.


Unlike positive pay, where the company only reviews the exceptions, reverse positive pay requires a review of all items presented for payment on the previous day. The list is sent by the bank the morning after and there’s a decision period for when the denials need to be submitted. Any non-decision items will be automatically paid at the end of the decision period.


Reverse positive pay has benefits and drawbacks. It can be used to detect fraudulent spending activity and zombie spend that won’t be visible to the bank in a traditional positive pay system. On the downside, it requires more resources and daily vigilance by the company. Reverse positive pay is also not as reliable as positive pay, but it is cheaper.      


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.  

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


How Crossbeam saved $10K+ with Ramp Price Intelligence

“Right now, I text a group of colleagues and search online—but being able to know within a 5% variance that we are solid on pricing? That gives me peace of mind."
Matt Dougherty, Senior Director of Finance, Crossbeam

How Clearbit closed the books >60% faster with Ramp + NetSuite

“Before Ramp, our month-end close took approximately 10 days. Now it takes three to four days—it's unbelievable.”
Kay Coolican, Accounting Manager, Clearbit

How Ramp helped Webflow lay a foundation for sustained growth

“This product allows us to enable our employees to be full-time right away, Ramp allows us to onboard people quicker, it allows us to get them the tools they need, which in many cases they need to be able to spend in order to grow.”
Ivan Makarov

How Candid expanded internationally with Ramp

“Ramp found over $250,000 in savings right out of the gate. That is far more valuable than any points program.”
Nick Greenfield, CEO, Candid

How FirstBlood’s switch to Ramp sped up their monthly close

“If I code one transaction with a certain vendor, Ramp knows. It makes suggestions based on past transactions. It just works.”
Kyle Potter, CFO, FirstBlood

How Elementus overhauled its spend management with Ramp

“The fact that I can have an expense, match it with a receipt immediately, upload it, and then integrate it into QuickBooks is a godsend.”
Matt Austin, Vice President of Operations, Elementus

How Eight Sleep consolidated their finance stack and launched a new product with Ramp

“Identifying the invoice, finding it in Ramp Bill Pay, and flexing it from there, takes all of one minute…it’s only a few clicks and you’re done.”
Irish Rose, Controller, Eight Sleep