Whenever you write or process a check, there is always the risk of fraud. While recent advancements and security measures from banks and other financial institutions have certainly made check fraud more of a challenge to get away with, it still exists. In fact, every year, millions of dollars are lost to check fraud. One of the most effective preventative measures that is gaining popularity is known as positive pay. But most people will initially ask: what is positive pay? How does positive pay work? And how does this method work to prevent check fraud?
Here, we’re taking a closer look at positive pay to better understand this relatively simple—yet effective—method for securing check writing and processing. If you frequently use checks for business or personal use, you’ll need to know about positive pay.
What is positive pay?
So, what exactly is positive pay? This service is used by banks and other financial institutions as a method to prevent check fraud. Positive pay is an automated cash-management service that makes financial transactions much more secure by matching a company’s check with the one that is presented for payment. If any of the information doesn’t match or the bank has any other reason to be suspicious of the check, then they will hold the check and contact the issuer. If the check is indeed fraudulent, the bank will cancel it before the transaction is processed.
How does positive pay work?
So, how exactly does this positive pay system work? When a check is presented at a bank, an automated system will verify the check against a list of checks from that issuer to ensure that all the important information matches up. Some of this information that positive pay checks for includes dollar amount, the check number, date, and the account number. If even just one of these pieces of information doesn’t align, the bank will be alerted and they will not clear the check.
When the check information doesn’t match, the bank will send out an exception report. Following this report, the bank will wait to process the payment and withhold the check until the issuer verifies or rejects the payment. The bank may flag the check, notify an in-house representative, and then seek permission to clear the check.
Benefits of positive pay
Preventing check fraud and securing your financial processes are the key purposes to positive pay. However, many people value this service because it provides additional benefits. Here’s a closer look at some of the top benefits of positive pay:
- Fraud control: this is why positive pay exists. This financial service dramatically reduces fraud because it ensures that each and every check and payment is securely verified. For greater check security and peace of mind, positive pay is extremely beneficial.
- Check verification: with positive pay, check verification becomes practically automatic. When a check is presented for payment, it will become verified by the bank. This also works to cut down on duplicate checks and confusion caused by lost checks.
- Account monitoring: positive pay allows you to have greater access and control over your financial accounts. It also makes it easier to monitor your accounts and keep track of check payments.
- Reduced potential for error: when processes become automated, such as positive pay, you dramatically reduce the human potential for error. In the long run, this can save you significantly on both time and resources. Positive pay makes check writing and check processing into a much more efficient system.
Preventing check fraud
Positive pay is one of the most effective methods for preventing check fraud. In essence, positive pay works as an added layer of security and a detailed level of attention for each and every check you issue. With positive pay, every piece of information on the check must match with previous checks, which means the authenticity of the check is ensured. While positive pay usually has an associated fee from the bank, some now offer it for free.
What is reverse positive pay?
In addition to the traditional (and much more widespread) practice of positive pay, there is another method referred to as reverse positive pay. Essentially, this method puts the impetus on the issuer of the checks to monitor and match up the check information. The bank sends out daily reports to the issuer, who will then verify the information on their own.
While some people may prefer this method because it gives you a bit more control over your financial security, it isn’t as efficient or secure. Avoiding additional costs via positive pay can be beneficial, but if you don’t respond to the bank in time, they may simply clear the check. This highlights the key difference between positive pay and reverse positive pay. One method offers you more control while the other allows for faster processing time and better security.
Conclusion – What is positive pay?
Believe it or not, but check fraud is still a serious issue. While credit cards and electronic deposits have become increasingly common in our digital world, checks still play an important role in our economy. Millions of checks are issued every year for both businesses and individuals. Whether electronic or paper, checks continue to be a popular payment method.
As a result, there still exists potential for fraud when a business or individual has check printing or check processing needs. Check fraud causes millions of dollars in lost funds every year and can damage the reputation of a business. But this doesn’t mean you have to be helpless in the face of fraudsters. By incorporating services like positive pay, banks and check issuers can enhance the security of this payment method and help fight off the potential for fraud. Positive pay helps to prevent check fraud and improve the security and efficiency of check processing. If your business uses checks, you’ll want to make sure your bank uses this effective service.
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