Last week while speaking at the Young Presidents' Organization, I spoke about Positive Pay and wanted to share with you what Positive Pay is and how it can help everyone prevent fraud against their business'.

An insurance company in Branchville, NJ is singing the praise of the Positive Pay Service after a bank teller uncovered an alleged scheme to defraud the company of at least $8,000.

The attempted fraud was discovered when an individual presented a check for cashing at a bank branch in South Carolina. Neither payee name nor amount on the check matched the Positive Pay file provided to the bank by the insurance company. As it turned out, the check had been stolen and altered by $8,000. Thanks to quick action by the bank, the individual was arrested on the spot.

What is Positive Pay?

Positive Pay is an automated fraud detection tool offered by the Cash Management Department of most banks. In its simplest form, it is a service that matches the account number, check number and dollar amount of each check presented for payment against a list of checks previously authorized and issued by the company. All three components of the check must match exactly or it will not pay.

How Does Positive Pay Work??

Positive Pay requires the company to send (transmit) a file of issued checks to the bank each day checks are written. When those issued checks are presented for payment at the bank, they are compared electronically against the list of transmitted checks. The check-issue file sent to the bank contains the check number, account number, issue date and dollar amount. Sometimes the payee name is included, but is not part of the matching service.

When a check is presented that does not have a "match" in the file, it becomes an "exception item". The bank sends a fax or an image of the exception item to the client. The client reviews the image and instructs the bank to pay or return the check.

There is generally a fee charged by the bank for Positive Pay, although some banks now offer the service for free. The fee might well be considered an "insurance premium" to help avoid check fraud losses and liability.