Positive Pay: Stop Check Fraud in its Tracks

January 16, 2025

Is Your Business at Risk? Discover the Power of Positive Pay

Running a small business involves juggling many responsibilities, from managing finances to protecting against fraud. This job is constantly made more difficult by the constantly evolving tactics of fraudsters out to steal your money.

Fortunately, especially if your business relies on checks to do business, there is a solution. Positive Pay offers significant protection and peace of mind by helping to guard your business against check fraud.

Here, we explore what Positive Pay is, its benefits, and how you can implement it effectively in your business.

What is Positive Pay?

Positive Pay is a cash management service that adds a layer of protection to your accounts by acting as a gatekeeper against fraudulent checks. By meticulously verifying every check presented for payment, it helps protect your business from unauthorized withdrawals and potential financial losses.

Types of Positive Pay

Positive Pay comes in a variety of formats. Iowa State Bank offers two types of Positive Pay that you can incorporate into your cash management toolbox:

• Check Positive Pay: Your checks are matched against a file of information you upload that contains information like payees, check numbers, and amounts.

• ACH Positive Pay: While similar to Check Positive Pay, ACH Positive Pay works on a series of filters you set up. If the payment does not pass the filter, it is sent to you for review.  

For the purposes of this article, we’ll focus on Check Positive Pay.

How Positive Pay Works

As your business writes its checks, you prepare a file that will be uploaded to Positive Pay through your business online banking login. This check file should include details like check numbers, amounts, dates, and payees.

Whenever a check is presented for payment, Positive Pay compares the information on the check to the authorized file. If there is a discrepancy between the information on the check and the authorized file, the check is flagged as an exception for your business to review by noon.

Creating a File of Check Information

The first step in utilizing Positive Pay is creating a detailed file of issued checks. This file includes essential information such as account numbers, check numbers, dates, amounts, and payee names. This comprehensive list serves as a reference for Positive Pay to verify transactions.

Comparing Check Information to the File

Once the check file is uploaded, it uses this information to cross-check any checks presented for payment. The comparison ensures that the details of each check align with those provided initially by your business.

Exception Process for Checks That Do Not Match

Positive Pay will need to be accessed through business online banking daily before noon. In cases where there is a discrepancy between the presented check and the file, the check is marked as an exception. You will review the exception and decide whether to authorize or reject the payment. This step is crucial in preventing unauthorized transactions from slipping through the cracks.

Review to Accept or Reject Payments

The advantage of this process is that you have the opportunity to review the exception and decide whether to accept or reject the check. If you accept the check, it will be paid. If you reject it, it will not be cleared for payment.

The Benefits of Positive Pay

For business owners, Positive Pay provides reassurance. Knowing that a robust system is in place to catch unauthorized transactions and reduce the risk of fraud brings peace of mind and allows you to focus on other critical aspects of running your business.

Preventing Check Fraud

Positive Pay is an effective deterrent against check fraud. Positive Pay can help prevent fraudulent checks from being cashed, protecting businesses from financial losses. 

For example, if a fraudster obtains a stolen check and alters any of its information, Positive Pay can flag the check as an exception and prevent payment. By verifying each check against a pre-approved list, it minimizes the chances of fraudsters successfully cashing counterfeit or altered checks.

Reducing Financial Losses

For small businesses, every dollar counts. Fraudulent transactions can significantly impact the bottom line. Positive Pay plays a crucial role in mitigating these risks by catching unauthorized checks before they are cashed, thereby reducing the likelihood of financial loss.

Enhancing Financial Security and Meeting Industry Standards

Some industries require businesses to comply with regulatory requirements for preventing fraud. Positive Pay can help your business meet those requirements by demonstrating a strong commitment to security.

Potential Drawbacks of Positive Pay

Positive Pay offers significant benefits to your business in terms of fighting fraud and protecting your business, but there are some potential drawbacks that you’ll want to keep in mind.

Increased Time Required to Process Checks

While Positive Pay offers enhanced security, it does require additional time and effort to create and upload the check file. This can incur an increased labor cost for your business.

Positive Pay also has the potential to increase the time it takes to process checks. In some cases, errors in the check file (or failing to submit a file altogether) can lead to all checks for a given day being marked as exceptions that need to be reviewed.

Tips for Maximizing the Benefits of Positive Pay

To maximize the benefits of Positive Pay, you’ll want to be sure to implement best practices. Here are a few pro tips to keep in mind:   

• Read the fine print for your Positive Pay system: Understand any fees, know what check-cashing scenarios are and are not covered, and be sure you understand your responsibilities within the system.

• Update your check-issue file regularly: An up-to-date file will help ensure any checks are verified correctly.

• Review exceptions daily: Keep a close eye on exceptions and investigate any suspicious activity.

• Train your employees: Ensure your employees understand how Positive Pay works and their role in the process. Maintaining strict controls will help limit errors.

• Stay updated on security measures: Stay informed about the latest fraud prevention techniques and ensure your Positive Pay system is up to date.

Using Positive Pay in Conjunction with Other Fraud Prevention Measures

While positive pay is a valuable tool, it is not infallible. Don’t rely on Positive Pay as your sole method of fraud prevention. Implement additional measures such as regular account reconciliation, employee training on fraud detection, and robust internal controls.

Ready to Get Started?

Positive Pay is a valuable piece of your comprehensive fraud prevention strategy and a great way to help protect your business from fraudulent checks. If you’re ready to get started, stop by the nearest branch today to learn more. We’re here to help!