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What is positive pay?

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Positive pay is an automated cash-management service financial institutions use to prevent check fraud. Banks use positive pay to match checks from companies with those they issue for payment. Checks that raise flags are sent back to the issuer for examination.

Positive pay provides protection for banks against fraud, losses, and other liabilities. These are typically associated with using the positive pay system, although some banks waive the fee or offer discounts.

How does positive pay work?

Positive pay is a service provided by financial institutions to their customers. Here’s a step-by-step breakdown of the process:

  1. The client enrolls in the program.
  2. The company provides a list of checks to the bank with payees, dates, amounts, check numbers, and the corresponding account.
  3. The bank cross-references the checks with the list from the client.
  4. Validated checks are cashed.
  5. Those that don’t match up are set aside. The bank contacts the client with details about these checks.
  6. The client notifies the bank about whether to proceed or return the checks.

Positive pay fees

Each bank may have its own positive pay fees depending on the organization’s relationship with the financial institution, the type of customer they are (small business, high-net-worth retail, or large corporation), and sometimes, the company’s net worth.

Some banks provide the service for free while others may charge clients on a per-use basis. For the latter, banks charge a flat fee for every item. Other banks require a monthly service charge. These banks may limit the number of transactions they’ll verify, or clients can access unlimited positive pay services.

On top of the service cost, there may be additional fees. These can include:

  • Charges for additional items that go over the limit
  • Payee matching fees
  • Issued check fees

Businesses interested in the service can ask their bank about enrolment costs and whether there are any additional fees.

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