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. Depending on your business, you may find it useful to incorporate more than one of these options into your cash management toolbox:
- Check Positive Pay: Your checks are matched against a file of information you provide that contains information like check numbers and amounts.
- Payee Positive Pay: An additional service that matches the payee listed on the check to the payee in your file. This is not generally included in regular positive pay.
- Reverse Positive Pay: In this case, the financial institution sends you a daily list of all checks presented for payment. You examine the checks and decide which ones should be paid.
- ACH Positive Pay: While similar to check positive pay, ACH positive pay generally works on a series of filters you set up. If the payment does not pass the filter, it is sent to you for review. If your business relies heavily on ACH payments, you may find an ACH positive pay program to be more cost effective for your business.
For the purposes of this article, we’ll focus on check positive pay.
How Positive Pay Works
As your business writes its checks, you also prepare a file for your financial institution with a list of those checks, including details like check numbers, amounts, dates, and sometimes payees.
Whenever a check is presented for payment, the financial institution 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 and sent back to your business for review.
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 sometimes even payee names. This comprehensive list serves as a reference for the financial institution to verify transactions.
Comparing Check Information to the File
Once the financial institution receives the check file, 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
In cases where there is a discrepancy between the presented check and the file, the check is marked as an exception. The financial institution notifies your business, allowing you to 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 submit the check file to the financial institution. 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 rejected.
Potential Costs Associated with Using Positive Pay
Positive pay services may come with fees, depending on the financial institution and the level of service required. However, many businesses find that the cost is justified by the reduced risk of fraud and potential financial losses.
Evaluating the Cost-Benefit Analysis
When considering positive pay, it's essential to conduct a cost-benefit analysis for your specific business needs. Weighing the potential savings from preventing fraud against the costs of the service will help determine if positive pay is the right choice for your business.
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.
- Regularly review exceptions: 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!