How does Positive Pay work?
Positive Pay works by verifying outgoing payments before they clear to prevent fraud. The process typically follows these steps:
- Submission of Approved Transactions: The organization sends a list of authorized checks or ACH payments to the bank, including details such as check numbers, amounts, and payees.
- Bank Verification: As transactions are presented for payment, the bank compares them against the submitted list.
- Flagging Discrepancies: If a check or ACH transaction does not match the provided details, the bank flags it as an exception.
- Organization Review: The organization is notified of any exceptions and must approve or reject them before the bank processes the payment.
- Final Processing: Approved transactions are cleared, while rejected ones are returned or investigated.
Learn More: What is Payee Positive Pay?
What are the benefits of using Positive Pay?
Implementing Positive Pay helps organizations enhance financial security and prevent fraudulent transactions. Key benefits include:
- Fraud Prevention: Detects and blocks unauthorized or altered checks and ACH transactions before they clear.
- Improved Accuracy: Reduces errors by ensuring only approved payments are processed.
- Enhanced Cash Control: Provides greater oversight of outgoing payments, improving cash flow management.
- Regulatory Compliance: Helps meet internal control and audit requirements by adding an extra layer of verification.
- Reduced Financial Losses: Minimizes the risk of losses due to check tampering, unauthorized withdrawals, or duplicate payments.
What is the difference between positive pay and ACH Positive Pay?
While both Positive Pay and ACH Positive Pay help prevent fraudulent transactions, they apply to different types of payments:
- Positive Pay is designed for check fraud prevention. Organizations submit a list of approved checks, and the bank verifies each check before processing it. Any mismatched checks are flagged for review.
- ACH Positive Pay focuses on electronic payments. Organizations set rules for which companies or entities are authorized to withdraw funds via ACH. Unauthorized transactions are flagged and require approval before clearing.
Cons of Positive Pay
While Positive Pay enhances fraud protection, it has some drawbacks:
- Ongoing Maintenance: Organizations must regularly submit transaction data, which adds administrative work.
- Potential Delays: Flagged transactions require manual review, which can slow down payment processing.
- Bank Fees: Many banks charge for Positive Pay services, increasing operational costs.
- Limited Coverage: Only transactions submitted for verification are protected, meaning any gaps in reporting could leave payments vulnerable.
What's important here?
Positive Pay is a fraud prevention service that helps organizations protect against unauthorized check and ACH transactions by verifying payments before they clear. By submitting a list of approved transactions to the bank, organizations can ensure that only legitimate payments are processed. Positive Pay enhances cash controls, reduces financial fraud, and improves accuracy in payment processing.
While it requires ongoing maintenance and may incur bank fees, the added security and reduced risk of financial losses make it a valuable tool for organizations looking to strengthen their financial defenses.
