Guard Against Check Fraud With Positive Pay

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Paper checks can feel outdated, but many businesses still issue and accept checks on a daily basis. How can you reduce your exposure to unauthorized checks? Positive Pay, also commonly known as Safe Pay, is an automated cash-management service that your financial institution may offer to help your organization mitigate the risks of check fraud.

Positive Pay gives your financial institution a daily list of outstanding authorized checks. This list is used to match every check that comes up against your account, so that any that have been forged, altered or counterfeited can be promptly identified and rejected for payment.

How Positive Pay works

As each check is issued, a corresponding entry must be made in your company's accounting software, whether for payroll or Accounts Payable. At the end of each business day, an updated Positive Pay file consisting of data on each check written and distributed is transmitted securely to your business' financial institution.

The Positive Pay File lists the following information:

  • Check number (this prevents duplication of checks or fraudulent check numbers outside of the set being used by your business)
  • Dollar amount (this prevents alteration of a paper check by various means)
  • Account number corresponding to the check (prevents checks written on other accounts being presented against your own)
  • Payee (not all banks use this data due to the higher chance of an innocent mismatch and time wasted trying to reconcile false alarms)

The bank utilizes your Positive Pay file of verified issued checks to match against checks presented for payment. If there is a mismatch in any of the data fields, or a check is presented for which there is no match in the Positive Pay file, the bank will contact your organization. You may confirm or decline the check, and the bank may send a declined check back to you for examination.

Reasons why every business should have a Positive Pay solution

The Positive Pay system provides your organization with some insurance against the presentation of bad checks to your bank, prevents unauthorized payouts, and helps you mitigate financial risk. It can also help protect your company against subsequent fraud, losses, and other liabilities to the bank, since your business is typically responsible for checks presented against your account, not the financial institution.

Your bank may or may not charge a fee for using Positive Pay. Depending on the bank and your agreement or type of account, you may be required to send a file every day or risk any checks presented that day being rejected out of hand. In most cases, it's advisable to submit a complete, updated file each day as opposed to simply an update to a previous file.

This means that at the end of every day, you should be set up to reconcile any checks that are reported to have cleared by your bank, remove them from the Positive Pay file, and add all new checks written and distributed during the current day to the outstanding ones before the file is sent securely to your financial institution.

It's also recommended that you set parameters for check payment or rejection based on your current capacity for risk, and to carefully consider further mitigating steps if a check is paid that should not be, as well as what might happen if an important check were mistakenly rejected due to a small error.

Ideally, if information between a physical or scanned check and your Positive Pay file don't match, your bank will notify you using an exception report in real time. This gives you the opportunity to conduct a quick review, and advise the bank to either accept or reject the check. In the event that you aren't immediately available, the bank will withhold payment until permission to clear it is granted.

What does Positive Pay Include?

Positive Pay is written completely in Microsoft Dynamics SL VB Tools, and is fully customizable and able to process checks produced by both the Microsoft Dynamics SL Payroll system, and Accounts Payable.

Depending on your bank, you may be able to maintain and transmit Positive Pay reports for multiple company checking accounts together, simplifying the process and reducing the number of file transmissions that must be made on a daily basis. Multi-company support, if available, can be managed both in one database and in separate databases.

Numerous bank formats are available "out-of-the-box" for your convenience, and we currently support well over 180 different banks and file formats. If we don't currently list your bank or format, please inquire as we are continually adding new banks and formats on demand.

Positive Pay is also fully user defined, from files and scripts that are secured by user-defined folder locations to support multiple file header and trailer records. We use eBanking Security to control access, and file archiving to ensure an unbroken record.

For more information on how Positive Pay and SK Global can help you prevent check fraud, contact us today.

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