What Is Positive Pay?

Bank employee explains services to new customer using brochure
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DEFINITION
Positive Pay is an automatic cash-management tool that banks offer to business owners looking to minimize their exposure to check fraud.

Positive Pay is a banking feature designed to help business owners protect themselves against fraudulent checks being written on their account. You give your bank details for each check you write, then the bank verifies that your information matches the information on checks presented to the bank before it processes the payment. If any items don’t match up, your bank flags them and sends them to you for review. You can then decide if you want to accept or decline the payment.

Here’s a closer look at how Positive Pay works and why you may want to use it for your business.

Definition and Examples of Positive Pay

Positive Pay is an automatic cash-management tool that banks offer to business owners looking to minimize their exposure to check fraud.

Once you activate Positive Pay, your bank will begin validating any checks presented for payment from your account against the check data you gave the bank beforehand, such as the check number, issue date, account number, or dollar amount. If the information doesn’t match, the bank flags the check and notifies you for examination.

How Does Positive Pay Work?

Positive Pay helps business owners safeguard their bank accounts against any losses by detecting suspicious transactions before they get processed.

For example, suppose Sally uses Chase for her business banking and she’s enrolled in Positive Pay (which, at Chase, is called “Check Protection Services”). Here’s how the process works:

  1. Sally gives Chase the check number, account number, and dollar amount for every check she writes. (She either enters this information manually in her banking portal or uploads a file.)
  2. Chase validates any checks presented for payment against the information Sally provides.
  3. If the checks match, Chase processes the payments. If any of them don’t match, Chase marks them as “exception items” and notifies Sally.
  4. Sally then logs into her account, reviews the exceptions, and tells Chase if she wants to pay or return the items.

How Much Does Positive Pay Cost?

Some banks (such as Chase), offer complimentary Positive Pay services for select business banking accounts. Other banks charge monthly fees, per-item fees, or a combination of the two.

For example, here’s a look at three banks’ Positive Pay programs:

Plumas Bank Capitol Federal First Premier
Monthly Positive Pay fee (per account) $50 $25 $40
Issued check fee (per check) $0 3 cents $0
Payee matching fee (per item) $0 2 cents 5 cents

Pros and Cons of Positive Pay

Pros
    • Effective fraud-protection tool
Cons
    • Requires work on the business owner’s part
    • Bank returns items if you miss review deadline

Pros Explained

  • Effective fraud-protection tool: Positive Pay can be an ideal way for companies to safeguard their financial accounts against fraud, counterfeit checks, and other liabilities. Think of it as an added form of protection for your business. Although not perfect, it does help.

Cons Explained

  • Requires work on the business owner’s part: Each time you write a check, you’re required to give the bank the information it needs to validate the check—by manually entering the details or by uploading a file. Although this could take as little as a few seconds, it still requires more work from the business.
  • Bank returns items if you miss review deadline: The biggest problem with Positive Pay is that you typically must tell the bank that same day—sometimes by 12 p.m. or 4 p.m.—if you want them to return or process flagged items. If you miss the cutoff, your bank will usually return the items, which could cause financial problems or slowdowns for your company.

Positive Pay vs. Reverse Positive Pay

Both Positive Pay and Reverse Positive Pay are tools you can use to protect your business from check fraud, but the two have some technical differences.

With Positive Pay, your bank reviews every check presented for payment and verifies that the details match the information you’ve provided to the bank beforehand. Reverse Positive Pay requires you to set a payment threshold. Your bank will only notify you when it needs to process checks over that limit.

Another major difference is how banks handle flagged checks if you don’t review them by the deadline. Positive Pay declines an unapproved check, returning it to the issuer (potentially charging you a returned item fee in the process). With Reverse Positive Pay, a bank will typically process the payment anyway, even if you don’t respond within the posted time frame.

Positive Pay Reverse Positive Pay
Bank reviews all checks presented for payment Bank only reviews checks over a certain payment threshold
If you don’t review flagged checks by the cutoff time, your bank returns the item  If you don’t review flagged checks by the cutoff time, your bank processes the item

Determining whether your business could benefit from Positive Pay depends on how many checks you write and how susceptible you think you might be to fraud. You will need to determine if the monthly fee, if applicable, will serve to offset the potential for fraud without it.

Key Takeaways

  • Positive Pay is a fraud-monitoring tool wherein you give your bank details for each check you write. The bank then verifies that the information you’ve provided matches the information on checks presented to it before it processes the payment.
  • By allowing the bank to monitor and verify any checks presented for payment, Positive Pay helps companies minimize exposure to fraud. It may incur a monthly or per-check fee.
  • If you don’t review a flagged item by the cutoff time, your bank will return the item to the issuer, which may cost you a returned item fee.
  • Reverse Positive Pay is another type of fraud-monitoring tool in which you set a payment threshold with your bank, which flags any checks over that amount. While you have the opportunity to review those checks, most banks will honor such payments if you do not respond by the cutoff time.

Article Sources

  1. Chase. “Check Protection Services,” Page 1. Accessed Dec. 10, 2021.

  2. Plumas Bank. “Frequently Asked Questions About Positive Pay.” Accessed Dec. 10, 2021.

  3. Capitol Federal. “Positive Pay Advantage.” Accessed Dec. 10, 2021.

  4. First Premier Bank. “Positive Pay.” Accessed Dec. 10, 2021.