Definition Definition

What Is Positive Pay? Understanding Positive Pay and Practical Example

What is Positive Pay?

Positive Pay is an automated system solution to manage cash and working capital that financial institutions like banks and insurance companies use to prevent check counterfeiting. It is a system that allows banks to verify the authenticity of checks for businesses in exchange for a small fee or free of charge. It helps businesses avoid fraud and uncalled-for accidents.

Any check that is suspected of being forged is returned to the bearer for scrutiny. The system protects a client corporation from deception, damages, and other bank liabilities by acting as a sort of filter.

Understanding Positive Pay

The service compares transaction records, purchase prices, and bank details of each check submitted against a database offered by the firm to defend against fraudulent, manipulated, and counterfeit checks. In some circumstances, the payee's name will appear on the list of requirements. The institution will not approve the check if it does not match. 

Scammers and fraudsters can manufacture fake checks to pass undetected if security measures are not in place. When the data on the paycheck does not resemble the details on the customer's account, the bank sends another exception statement to the customer and withholds money until the corporation instructs the bank to decide whether to accept the money or not. The bank can mark the check, alert a company employee, and request permission to process it.

Reverse positive pay is just another version of the positive pay approach itself where the bank transmits updated information about the check enrolments to the firm and distributes the accepted checks. In reality, if the corporation does not accept the checks in a reasonable amount of time, the institution will be forced to pay them. As a result, reverse positive pay may not be as beneficial as positive pay as a counterbalance.

Practical Example

If someone signs a $200 paycheck but then someone else edits it and attempts to settle it for $2000, positive pay will identify the transaction as not matching what you submitted and send you an exception email.

Similarly, if anybody steals a paycheck and wants to settle it, the system will reject the transfer since the account number and/or dollar value do not resemble the permitted checks on your account.

In Sentences

  • The term positive pay is commonly used by financial organizations to prevent check fraud. 
  • Positive Pay is a system that allows banks to match the checks that a company issues with the checks that it normally delivers for payment.


Category: Economics
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