Positive pay is a system established between a bank and a bank customer to help catch or reduce check fraud.  The system works by matching the checks that may be delivered or presented for payment to the bank against a list of checks that have been written by the bank customer.  Bank positive pay is offered by almost all large commercial banks.  The system protects companies and banks against losses from altered checks and check fraud.

The bank customer, which is usually a good size business that produces a fair amount of checks on a regular basis, sends an electronic file to the bank identifying the checks that have been written with the check number, payee and amount.

When a check drawn on the bank customer’s account is presented to the bank for payment, the bank uses the electronic file to compare the check or checks presented against the list of checks that customer has produced.  In the positive pay system, the bank will usually compare the check payee, the amount, the check number, and date the check was written before authorizing payment on the account. 

The positive pay system should flag or expose cases when the check being presented to the bank doesn’t match do to alterations or fraud.  Instances of suspect payments may include differing check amounts for the same check number, a counterfeit check with a different check number, or a payee name that does not match or is not in the file.

Of course, this is all done electronically to expedite the process and avoid manual intervention until the system finds an error or discrepancy.  When the bank customer prints their checks, the electronic file is automatically transmitted to the bank with the list of checks and all the relevant data which is then compared with any checks presented on the list at the banks electronic reader.

Check fraud causes a significant amount of financial loss for banks and banking customers and both parties have an incentive to use these types of systems to reduce losses.  While positive pay can be very effective in fighting check fraud it does not protect us against all fraud.

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