Positive Pay
Positive pay is a bank fraud prevention service that matches checks presented for payment against a list of checks you’ve issued. If a check doesn’t match your records, the bank flags it for your review before paying.
How Positive Pay Works
1. You issue checks and send details to your bank 2. Someone presents a check for payment 3. Bank compares check against your approved list 4. Match → Check is paid automatically 5. No match → Bank alerts you to review
Information Sent to Bank
When you issue checks, you provide:
| Field | Purpose |
|---|---|
| Check number | Primary matching key |
| Amount | Exact dollar match required |
| Payee name | Optional but recommended |
| Issue date | Additional verification |
| Account number | Identifies your account |
Types of Positive Pay
Standard Positive Pay
Matches check number and amount only.
Payee Positive Pay
Also verifies the payee name matches. Provides stronger protection but requires OCR technology at the bank.
Reverse Positive Pay
Bank sends you a list of checks presented. You identify which to pay. Less common, more manual.
ACH Positive Pay (ACH Debit Block)
Similar concept for electronic debits. You pre-authorize which companies can debit your account.
Exception Handling
When a check doesn’t match, you receive an exception item:
| Decision | Action |
|---|---|
| Pay | Authorize payment despite mismatch |
| Return | Reject the check (not paid) |
Common Exception Reasons
| Exception Type | Cause |
|---|---|
| Amount mismatch | Check altered or keying error |
| Check number not issued | Fraudulent or counterfeit check |
| Duplicate presentment | Check presented twice |
| Stale date | Check older than allowed period |
| Payee mismatch | Wrong or altered payee name |
What Positive Pay Catches
| Fraud Type | How Positive Pay Helps |
|---|---|
| Check washing | Amount changed → Amount mismatch |
| Counterfeit checks | Check number not issued |
| Altered payee | Payee name mismatch |
| Duplicate deposit | Check number already paid |
| Internal fraud | Unauthorized check issuance flagged |
What Positive Pay Doesn’t Catch
- Checks issued fraudulently by authorized signers
- Legitimate checks with legitimate payees
- ACH fraud (unless ACH positive pay enabled)
- Wire fraud
- Card fraud
Setting Up Positive Pay
Step 1: Enroll with Bank
Contact your bank to enable positive pay on your account(s).
Step 2: Configure File Format
Set up your accounting system to generate the bank’s required file format.
Step 3: Establish Transmission
Configure secure file transmission (usually SFTP or bank portal).
Step 4: Set Review Process
Determine who reviews exceptions and response deadlines.
Step 5: Test
Run test files before going live.
File Transmission
Timing
- Same day: Send file same day checks are printed
- Next morning: Send before bank’s cutoff (often 10 AM)
- Real-time: Some banks accept immediate transmission
Format
Common formats include: - Fixed-width text files - CSV files - Bank-specific proprietary formats - NACHA format
Example File
12345,1500.00,ACME SUPPLY CO,2025-01-15 12346,750.50,JONES CONSULTING,2025-01-15 12347,2200.00,ABC SERVICES LLC,2025-01-15
Exception Review Window
Banks typically give you a limited window to respond to exceptions:
| Scenario | Typical Deadline |
|---|---|
| Same-day exception | By 2-3 PM same day |
| Overnight exception | By 10-11 AM next morning |
| Weekend exception | Monday morning cutoff |
Important: If you don’t respond, banks may default to pay or return depending on your agreement.
Cost
| Fee Type | Typical Range |
|---|---|
| Monthly fee | $25-100 |
| Per-item fee | $0.05-0.25 per check issued |
| Exception fee | $5-25 per exception |
Costs vary significantly by bank and account volume.
Best Practices
- Transmit files promptly - Don’t delay sending check issue information
- Monitor exceptions daily - Review and respond before deadlines
- Use payee verification - Upgrade to payee positive pay if available
- Reconcile regularly - Match positive pay records to your books
- Train backup staff - Someone must be available to review exceptions
- Consider ACH blocks - Add ACH positive pay for complete protection
Positive Pay vs Other Controls
| Control | Protects Against |
|---|---|
| Positive pay | Check fraud |
| ACH debit block | Unauthorized ACH debits |
| Dual signatures | Internal fraud |
| Segregation of duties | Internal fraud |
| Bank reconciliation | All payment fraud (detective) |
Related Terms
- Segregation of Duties - Dividing tasks to prevent fraud
- ACH - Electronic payment system
- AP Internal Controls - Complete controls framework
- Invoice Verification Checklist - Complete AP fraud controls
- Three-Way Matching - Invoice verification process
Want to know about every invoice before it becomes a payment? See how BillerPlus creates an audit trail from submission →