Financial fraud is increasing as a result of today’s superior technology. And as a business owner, you’ll want to eliminate the danger of losing money due to fraudulent activity on your accounts. As a business develops faster ways to optimize the payment process through automation, active fraud protection is required to protect the brand. This is possible due to a technique known as “positive pay.” This article has all you need to know about the positive pay system, as well as the cost and every other thing associated with it in business.
What Is Positive Pay?
Positive Pay is a cash-management tool that banks provide to business owners who want to reduce their risk of check fraud.
It is a banking feature designed to help business owners protect themselves against fraudulent checks being written on their accounts. You give your bank details for each check you write, then the bank verifies that your information matches the information on checks presented to the bank before it processes the payment. If there are any discrepancies, your bank flags them and sends them to you for review. You can then decide if you want to accept or decline the payment.
Once you activate positive pay, your bank will begin validating any checks presented for payment from your account against the check data you gave the bank beforehand, such as the check number, issue date, account number, or dollar amount. If the information does not match, the bank flags the check and notifies you that it will be examined.
How does Positive Pay Work?
A positive pay service analyzes specific check data against a list provided by the company prior to processing to safeguard a business against changed, forged, or counterfeit checks. This includes details such as:
- Monetary value
- Number of the check
- The account number
The payee is sometimes put on the list as well. The bank will not clear the check if any of the data does not match. These security checks are essential to ensure that a company never accepts counterfeit checks that fall through the cracks. It’s a method of automating your accountant’s vision.
When the information does not match and the check is refused, the bank sends an exception report to the consumer. It will delay payment until the company notifies the bank of whether the transaction should be accepted or rejected. The bank may also take the following actions:
- Mark the check
- Notify a corporate representative.
- Request that the check be cleared.
If there is simply a tiny error or difficulty, the business might instruct the bank to clear the check. If your organization fails to deliver a list to the bank, any checks that should have been included may be refused. So be cautious.
Positive Pay Aspects
Without security checks like positive pay, a company’s money is at risk from counterfeit checks created by fraudsters and identity thieves. The positive pay service ensures that the check is not honored if it does not match the correct identifying information that the bank has on file.
If a check does not match the account number, dollar amount, or check number, the bank can flag the check, alert a business representative from your company, and seek permission to clear the check if it is valid. The payee name is sometimes included in the system, although it is not usually part of the check matching service.
While positive pay is typically charged to businesses, most feel the solution to be well worth the expense in order to defend against check fraud and financial losses.
#1. Transmission of files
Once you understand how it works, the positive pay system is simple to utilize. When your business issues checks, you must send a list to the bank that includes the check numbers, issue dates, and dollar amounts. When it comes to transmitting files, each bank has different format requirements, so be sure to check with your bank.
#2. Exception Items
When a check is delivered to a bank and there is no “match” in the transmitted file, it is classified as an “exception item.” When an exception item is discovered, the bank will call the customer, who will then analyze the check and order the bank to accept or deny it.
Every day, any questionable checks are forwarded to the customer. The corporation can then make their decision to the bank the same day. Companies can save hundreds, thousands, or even millions of dollars in fraud costs by spotting illegal checks before they clear in your account.
What is the Positive Pay System?
The National Payments Corporation of India’s positive pay system is a method of reconfirming the critical elements of large-value checks. Under this system, the person issuing the high-value check transmits to the drawee bank some vital facts about that check, such as the date, name of the beneficiary/payee, amount, and so on. The information can be submitted electronically by SMS, mobile app, internet banking, ATM, and so on. While issuing the cheque, the details are cross-checked, and any inconsistency is noted.
What is the system’s maximum allowable amount?
The RBI has instructed banks to enable the feature for all account holders sending cheques of $50,000 or more. It also stated that, while using the service is entirely up to the account user, banks may consider making it mandatory for cheques over 5 lakh or more.
What is the significance of this system for customers?
Some banks have informed customers that if the information of large-value cheques is not pre-registered, the cheque would be returned without penalty. Customers should ensure that details are provided within the timeframe stipulated by banks when issuing a high-value cheque to ensure hassle-free clearance. Only cheques registered in the positive pay System will be accepted under the dispute settlement mechanism, according to the RBI. Customers will be notified via SMS if their cheque was accepted or denied for any reason.
What are the cheque details that must be submitted?
Account number, cheque number, cheque date, amount, transaction code, beneficiary name, and MICR CODE are all required.
How may these particulars be submitted?
These information can be submitted via the bank’s website, online banking, or mobile banking. If a consumer does not use electronic banking, they can submit their information by visiting a bank location.
Reverse Positive Pay versus. Positive Pay
Positive Pay and Reverse Positive Pay are both methods for protecting your business from check fraud, but they differ in significant ways.
Usually, Positive Pay requires your bank to evaluate each check presented for payment and ensure that the specifics match the information you’ve previously provided to the bank. Setting a payment threshold is required for reverse positive pay. Your bank will only notify you if checks above that limit must be processed.
Another significant distinction is how banks handle flagged checks if you do not review them by the time. Positive Pay rejects unapproved checks and returns them to the issuer (potentially charging you a returned item fee in the process). When using Reverse Positive Pay, a bank will normally process the payment even if you do not answer within the time range specified.
|Positive Pay||Reverse Positive Pay|
|Bank reviews all checks presented for payment||Bank only reviews checks over a certain payment threshold|
|If you don’t review flagged checks by the cutoff time, your bank returns the item||If you don’t review flagged checks by the cutoff time, your bank processes the item|
The amount of checks you write and how vulnerable you believe you are to fraud will determine whether your business could profit from Positive Pay. You must decide if the monthly cost, if applicable, will be sufficient to outweigh the risk of fraud.
Positive pay is a clever kind of business banking in a variety of ways. It streamlines the check cashing process, reduces errors, and saves business on labor. Other significant benefits include:
#1. Verification of Checks
A positive pay check is one that has undergone the positive pay review process.
Every check provided for payment is validated automatically. Checks presented at any banking office are included. Positive pay prevents multiple payment payments and protects against lost or stolen cheques.
Positive pay checks may be included in a positive pay file, which is a file containing checks written by an organization over a certain time period. This file is delivered to the bank of an organization, where all checks can be verified at once for a faster cash-out. Each check number and money amount will be compared against each cashed check by the bank.
#2. Positive Pay Exceptions
A positive pay review procedure can “fail” for non-fraudulent reasons. For example, a business may send a file of issued checks to its bank for inspection, only to have a check presented that does not have a “match” in the file. The unmatched check becomes a “exception item,” and the corporation simply sends an image or fax of the exception item to the customer.
After reviewing the exception item, the customer will either authorize it for payment or instruct the bank to return the cheque.
#3. Control of Fraud
Positive pay significantly minimizes the likelihood of check fraud. It’s as if you have a set of robotic eyes watching over everything. A business’s capacity to detect and return counterfeit things, including payee name suspects, has improved. A bank collaborates with a company to ensure that the cheques posted to the account were genuinely issued/received.
#4. It is always your choice.
Ultimately, the business determines whether or not to accept the cheque. With positive pay, you have the final say. Online banking enables a brand to simply monitor and decide on exception items, as well as upload issue information.
Other significant benefits include:
- Consistent account surveillance
- Human labor costs and errors are reduced.
- All transactions are scrutinized by a second pair of eyes.
What Does Positive Pay Cost?
Some banks (such as Chase) provide Positive Pay services for free with certain business banking accounts. Other financial institutions levy monthly fees, per-item costs, or a combination of the two.
Here’s an example of three banks’ Positive Pay programs.
|Plumas Bank||Capitol Federal||First Premier|
|Monthly Positive Pay fee (per account)||$50||$25||$40|
|Issued check fee (per check)||$0||3 cents||$0|
|Payee matching fee (per item)||$0||2 cents||5 cents|
The Pros and Cons of Positive Pay
It is an effective fraud-prevention solution. It can help businesses secure their bank accounts from fraud, counterfeit checks, and other risks. Consider it an additional layer of security for your business. Although not perfect, it is beneficial.
Work on the part of the business owner is required: When you write a check, you must provide the bank with the information it needs to confirm the check, either manually or by uploading a file. Although this could take only a few seconds, the business must nevertheless put in additional effort.
If you miss the review date, the bank will return your items: The main issue with Positive Pay is that you must usually notify the bank the same day—sometimes by 12 p.m. or 4 p.m.—if you want them to return or process flagged items. If you miss the deadline, your bank will normally return the things, causing financial problems or slowdowns for your business.
Positive pay allows a business to stay one step ahead of fraudsters while also protecting its cash flow. Implementing strategies today to secure future protection leaves less room for error. It is a fraud-prevention system given by most commercial banks to safeguard businesses of all sizes, and it should be seriously studied.
Frequently Asked Questions
What are the benefits of positive pay?
- It safeguards your business from check fraud.
- Non-authorized transactions to your account are blocked.
- It eliminates the need to close accounts when unauthorized cheques clear.
How long does positive pay take?
The positive pay service is usually valid within 3 business days