Positive pay is a fraud prevention tool used by businesses to ensure that only authorized checks are paid. It is a verification process that compares the checks presented for payment by a business with those issued and recorded by the business. This process helps to protect businesses from fraudulent payments, such as those made with counterfeit checks.
How Does Positive Pay Work?
Positive pay works by comparing check information, such as check numbers and dollar amounts, that is submitted by the company issuing the checks with information contained in the company’s accounting system. The system can be set up to pick up discrepancies between the two, such as when the amount of the check does not match the amount issued or the check number does not match the number issued. When the system finds a discrepancy, it will alert the business and stop the payment from being processed.
Benefits of Positive Pay
Positive pay has a number of benefits for businesses. The most important benefit is that it helps to prevent fraudulent payments from being made. This type of fraud can be very costly for businesses, so positive pay helps to minimize the risk. Additionally, positive pay can help to reduce the amount of time spent reconciling checks and make the reconciliation process more efficient. Finally, positive pay can help to improve cash flow management by reducing the risk of fraud and delays in payment processing.
Setting Up Positive Pay
Setting up positive pay can be done through a company’s bank or financial institution. The process typically involves providing the bank with detailed information about the checks the company issues, such as the check numbers and dollar amounts. The bank will then use this information to compare with the checks presented for payment. If a discrepancy between the two is found, the business will be alerted and the payment will not be processed.
Common Issues with Positive Pay
Although positive pay can be an effective fraud prevention tool, there are some potential issues that businesses should be aware of. One of the most common issues is that positive pay cannot detect all types of fraud. For example, if someone were to alter the check numbers or dollar amounts before submitting the checks for payment, positive pay would not be able to detect the fraud. Additionally, positive pay can be difficult to set up and maintain, as it requires detailed information about the checks issued. Finally, positive pay can cause delays in payment processing, as any discrepancies must be investigated before the payment can be processed.
Positive pay is an effective fraud prevention tool that can help businesses protect themselves from fraudulent payments. By comparing the checks presented for payment with those issued and recorded by the business, positive pay is able to detect discrepancies and alert the business. Additionally, positive pay can help to reduce the amount of time spent reconciling checks and improve cash flow management. Although there are some potential issues with positive pay, such as its inability to detect all types of fraud and the difficulty of setting it up, it can be a valuable fraud prevention tool for businesses.