What is positive pay and how does it work?

Have you ever heard of positive pay? Outside of financial circles, it may sound pretty wonky to you, but it’s a critical tool used by businesses all over Utah to prevent fraud exposure. In essence, positive pay is a banking feature designed to help business owners prevent fraudulent checks. Now, you may be reading this thinking, “But who writes checks anymore?” Well, you may be surprised to hear this, but a lot of businesses still write checks. There is still a place for pen and paper in the business world. And it could be because of – rather than despite – advances in technology that financial fraud is increasing.

As a business owner in Salt Lake City, you want to do everything you can to eliminate fraud risk. And as businesses develop faster and more optimized ways to pay for things, active fraud protection is required to protect the brand. And that’s where positive pay comes in. In this article, we’re going to provide you with all the information you need to know to use the positive pay system, as well as any costs associated with it.

A Primer on Positive Pay and How it Functions for Businesses

Positive Pay is an automatic cash-management tool that banks and business owners use to minimize exposure to check fraud. Businesses must activate the positive pay feature with their local bank. Your bank will validate any checks you present for payment against the check data you gave them ahead of time. This includes the check number, issue date, account number, and dollar amount. All the information must match, or the bank will gladly check and alert the business.

Positive pay works by helping business owners ensure their bank accounts are protected against losses. It prevents suspicious transactions from going through before they are even processed. Positive pay also goes by many different names. Generally, a bank will refer to it as some kind of “check protection” or “check protection services.” Its functionality in the transaction process is quite simple.

First, the business provides their bank with the check number, account number and dollar amount for every check they have written in a specified period. They do this either through a manual process or through an online banking portal. The bank then validates all the checks they have received against the information provided by the business. If the information all matches, then the bank processes the checks. If any of them don’t match, then the bank will alert the company and mark any incorrect information. The exceptions are noted and then the business can go in and review them and approve or deny them if necessary.

Why Should You Use Positive Pay?

As with any product or service, there are pros and cons. Positive pay is an effective fraud-protection tool, however, it does require some work on the business owner’s part. For instance, whenever a business writes a check, it will need to give the bank the check information to ensure the check can be validated. To do this, they will need to use a web portal or write down the information manually.

There may also be a review deadline. It’s one of the biggest problems with positive pay. If you do not let the bank know the same day, they may return flagged items they may try to process. If the check is valid and you miss the deadline to report it, you could run into cash flow problems or supply slowdowns. It’s up to the business owner to ensure the checks are reported to the positive pay system.

There is also another bank service called reverse positive pay. So, what’s the difference between positive pay and reverse positive pay? In a positive pay scenario, your bank will review every check you’ve provided them before they cash it and put the funds in your account. Reverse positive pay requires the business owner to set a particular payment threshold before they begin using the service. When your cashed checks go over that limit, your bank will notify you.

Reverse positive pay also has different review deadlines. Positive pay will decline an unapproved check and reverse positive pay will allow the check to be processed if the business holder does not reply within the posted timeframe.

Are you a business in Salt Lake City or surrounding areas looking for a community bank to provide you with a positive pay or reverse positive pay fraud protection service? Or are you looking for business checking, business loans, or small business lines of credit? At First Utah Bank, we’re your go-to community bank for the entire state of Utah. Contact us today at (801) 308-2265 to learn more about how we can help your business grow and thrive.