Last updated on October 4th, 2024 at 03:12 am
Many businesses have faced situations where they saw an authorized cash withdrawal from the bank that wasn’t reported on company data. These fraudulent practices can cause some serious damage to a company’s finances.
But how do you save yourself from such incidents? Positive pay is exactly made for such cases. It is an automated system that verifies checks before they’re cashed. This can help businesses to prevent similar scams.
To keep your business safe from such a scam, keep reading and discover what positive pay is, how it works, and why it’s worth the investment.
What is Positive Pay?
Positive pay is an automated security system provided by banks where the bank runs a background check on the check issued under a business’s name and verifies whether the details on the check match the details provided by the business.
Here’s a positive pay example: Suppose your company issues a check of $10,000 to one of the vendors. The company will provide details like check number, date, and amount to the bank. So, when the vendor cash their check, the bank will verify the check with the details your company provided. If the details match, the check will go through, and if not, the check will not be processed, and the company will be informed of this fraudulent activity.
READ MORE 5 Key Differences Between Positive and Reverse Positive Pay
How It Works
The process begins when the company issues a check for a vendor or anyone. The company provides the details of this check to the bank using the positive pay automated system. The details include information about the check number, date, amount, and the payee’s name.
Once the vendor or the payee cashed the check in the bank, the bank’s positive pay system compares the details on the check to the details provided by the company. If the details match, meaning the check number, amount, and other key details are correct, the bank will process the check as usual. But if the details are incorrect, the bank will hold the payment.
The bank notifies the company about this payment, so they check whether this is just a tiny error or some scam. The payment will be processed if the company confirms that it’s nothing but a small error. But if the company confirms it’s not a check they issued, the bank will stop the payment immediately.
Types of Services
- Standard Pay: In this process, the bank reviews the checks against the details provided by the company to determine whether it’s legit.
- Reverse Positive: Here, the company is responsible for reviewing the checks and flagging any unauthorized payments.
- Positive Pay Software: This system helps automate the standard procedure by contacting the bank, checking details, and flagging unauthorized checks.
Common Problems
- Login Issues: Positive pay is a virtual service that is password-protected for privacy and security reasons. However, if the bank has any server issues, businesses cannot log in to their account sometimes. If someone deposits their check during this period, the process will be held until the systems are back online.
- Exceptions: Human errors are very common for banks and businesses using the standard positive procedure. People on both ends can make mistakes in dates, amounts, and check no, leading to wrongful payment holds.
- Costs: Positive pay is a valuable service that banks offer, but is not free. Banks charge businesses on every check they verify, or if the business has a lot of checks, they make arrangements for monthly payments for a this system.
FAQs
What are the rules for Positive Pay?
The rules for positive pay are simple. When a company issues a check, they also provide the bank with details like check number, amount, date, and payee information. The bank cross-checks the info when the payee cashed the check to ensure it has the exact details. If it’s correct, the payment is processed; if not, the payment is kept on hold.
Is Positive Pay worth it?
Businesses that issue many checks to their vendors benefit from positive pay. It reduced the chances of fraudulent activities significantly. Businesses that issue checks a few times a month might not benefit as the others.
How much does Positive Pay cost?
For companies that pay monthly for positive pay, the bank charges around $50-$100 monthly. For companies that pay per check, the pay can range from around $0.10 to $2 per check.
What causes a Positive Pay exception?
A positive pay exception is a situation where the bank or the company misreads or provides wrong check information. This happens due to human errors, some changes made to the check, or a scam.
Final Statement
Positive Pay remains one of the most efficient methods to prevent fraudulent checks. It doesn’t matter if you select the standard system option and reverse Pay. The service can help companies safeguard their financials by ensuring that only legitimate payments are made.
The price of this system generally is not very high compared to the possible loss of funds resulting from fraud. With the implementation of Positive Pay, companies can reduce risk, increase security, and have confidence that the security of their payment is protected. If your company regularly sends checks, then investing in Positive Pay is a wise option that can pay off in the long run.
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