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Positive pay 101: A guide to preventing payment fraud

Positive pay 101: A guide to preventing payment fraud

Technology has empowered businesses to make more financial transactions, faster. With this increase in speed and cash flow comes opportunity–not only for our SMB customers, but for bad actors, too. Nearly 30% of companies reported an increase in payments fraud between 2020 and 2021, according to the 2022 AFP Payments Fraud and Control Report.

The good news: positive pay can help safeguard your business against payment fraud—and the loss and liability it can incur.

What is positive pay?

Positive pay is a service that banks offer businesses to detect fraudulent checks. An automated system compares the checks presented to the bank for payment to a list of information provided by the business about every check they’ve written.

Any suspicious checks the system identifies are sent to the business for verification. Generally, banks charge businesses a fee for positive pay—although some offer it as a free service to entice new business banking clients.

The positive pay system is designed to ensure the bank doesn't process fraudulent checks. Even as more businesses adopt card and online payments, checks remain a common payment method. Although our customers love the ease, efficiency, and convenience of ePayments, there are still times when vendors opt for paper checks instead.

How does positive pay work?

Once a business signs up for positive pay, they present the bank with a list of information about every check they’ve written in the past 24 hours, such as the date, dollar amount, check number, and account number.

The business typically issues this document, known as a check-issue file, on a daily basis.

Whenever the bank receives a check for payment, the positive pay system verifies the date, dollar amount, and other details against the check-issue file. If the system doesn’t identify a match, the bank adds the check to an exception report, which it sends to the business for review. The check clears only if the business advises the bank to accept it.

If a business fails to submit the list of checks they’ve issued on a given day, the bank often declines all the checks presented on that day until the business can verify them.

It’s crucial for the check-issue file to be accurate and up-to-date. If you choose to implement positive pay for your business, set up a centralized system for your check-issue file.

As soon as your business writes a check, update the file with all the necessary check details, and schedule routine audits of the document. Use password protection and/or other controls to restrict who can modify it.

Who needs positive pay?

Businesses that regularly issue checks must decide whether the fraud protection it provides is worth the cost. In cases where the bank offers positive pay for free, there’s little reason not to enroll.

In cases where positive pay comes with a fee, the value may be less clear-cut. It can help to compare the fee to the losses you might incur as a direct result of fraudulent check transactions, as well as the labor costs associated with addressing check fraud.

What is reverse positive pay?

Reverse positive pay is a type of positive pay in which businesses monitor their own checks. Each day, the bank notifies the business of any checks that have been presented, which the business can verify against their own records. The bank typically cashes the checks if they don’t hear back from the business within a certain timeframe.

Reverse positive pay vs positive pay

Reverse positive pay holds businesses responsible for reviewing incoming checks. But with positive pay, that responsibility lies with banking institutions.

While reverse positive pay isn’t as reliable as traditional positive pay, many companies opt for it because it comes with less expense. Businesses that want to implement reverse positive pay first need to have an account with a bank that offers it.

The qualifications they need to meet to use the service depends on the bank. Some banks require businesses to have minimum account balance or a minimum annual revenue.

Reverse positive pay

  • Bank reviews incoming checks
  • Bank cashes all checks unless the business instructs them otherwise

Positive pay

  • Business reviews incoming checks
  • Bank declines all checks marked as suspicious unless the business instructs them otherwise

What is ACH positive pay?

Your business can use fraud prevention systems similar to positive pay for electronic payments, although the specifics of how these systems work depends on the type of electronic payment, as well as the financial institution providing them.

ACH positive pay is a form of positive pay designed to prevent fraudulent ACH transactions. Businesses use a system that lets only ACH transactions that meet certain criteria process automatically and flags suspicious transactions for review.

ACH positive pay vs. positive pay

Positive pay detects fraudulent checks, while ACH positive pay detects fraudulent ACH transactions.

Also, ACH positive pay relies on a series of filters instead of a list to intercept potentially fraudulent payments. The business sets up custom filters that allow certain ACH transactions, such as those from approved vendors, to automatically post. They can then authorize or deny any blocked ACH transactions as they see fit.

ACH positive pay

  • Detects fraudulent ACH transactions
  • An automated system allows only certain ACH transactions to process automatically using filters set by the business

Positive pay

  • Detects fraudulent checks
  • An automated system verifies incoming checks against a list of issued checks provided by the business

Limitations of positive pay–3 scenarios and how to take additional precautions

While positive pay can be an effective security measure, it’s not without limitations. Here are some situations where positive pay may not be enough to —and the extra precautions you need to take.

Over-the-counter checks

Traditional positive pay is designed to help reduce check fraud, primarily when it comes to transmitted or scanned checks. But not all positive pay systems can handle checks handed over the counter at a banking location–and not all banks offer verification over the counter.

If you’re considering positive pay for your business, remember to ensure that all check-cashing scenarios, including in-person, will be properly verified.

Verification of payees

With positive pay, the information used to verify a check typically doesn’t include the payee name. Fortunately, many banks augment their traditional positive pay services with payee positive pay, which includes verification of the payee name, usually with additional fees.

If your business is looking to use positive pay, consider your unique situation and whether you need payee verification—and whether your software and bank will support it.


Banks transmit their checks in a broad range of file formats—and even a single bank might transmit checks in multiple formats. If you implement a positive pay system for your business, remember to account for this variation.

Positive pay takeaways

  • Positive pay is an automated system for detecting check fraud that verifies checks presented to the bank for payment against a document listing details about every check the business has issued, known as the check-issue file.
  • Positive pay works by comparing the check date, dollar amount, check number, and account number with the details in the check-issue file. If they don't match up, the bank won’t clear the check until the business verifies it. 
  • While positive pay systems can reduce check fraud, they aren’t foolproof. For example, not all of them can handle over-the-counter checks. 
  • Reverse positive and payee positive pay are variations of traditional positive pay designed to prevent fraudulent check payments. 
  • ACH positive pay is a variation of positive pay designed to prevent fraudulent ACH transactions.

Implementing positive pay

Implementing positive pay is a proactive step you can take to protect your business from losses and other fallout from payment fraud.

BILL comes with built-in fraud prevention features, including positive pay. Sign up for a free trial today.

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