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Marketing demands and savvy innovation are driving the development of the worldwide accounting services market, and more associations are currently perceiving the capability of bookkeeping programming in the business. Because bookkeeping is not easy!

meme about positive pay
meme about positive pay

Bookkeeping is something other than monitoring credits and charges and doing the math on records. Accounting, inspecting, finance, charge planning — every one of these is just important for what makes the whole bookkeeping.

Throughout the long term, accounting has developed into a more powerful field, and the utilization of complex information and new accounting methods ceaselessly drives the development of accounting services. We can see these by the stats below!

By 2022, the market for accounting services will be worth $868 billion, growing at a CAGR of 9.1%. (2022) The Business Research Company
Booking and accounting services are provided by 79% of accounting companies. (2021 Capital Counselor)

Prodded by the developing propensity of little to enormous organizations and the extension of counseling business firms, the accounting industry has continuously witnessed a huge development for many years and will continue to do so.

In light of these figures, it is crucial for all organizations to establish preventative steps to secure payments, including training staff members about current payment fraud practices and putting in place the tools and procedures required to protect corporate assets and data from cybercrime.

One such service that aids in the prevention of payment fraud is Positive Pay.

According to AFP President and CEO Jim Kaitz, "Payments fraud is a persistent problem that is only growing worse despite repeated warnings and educational efforts." Treasury and finance professionals must become knowledgeable about the most recent frauds and teach both themselves and, perhaps more significantly, their coworkers how to avoid them.

So let’s find out more about Positive pay and how it helps organizations prevent fraud!


What is positive pay?

Online banking is becoming more practical for both individuals and companies because of technological advancements. Much of that was made possible by the Check 21 Act, which was passed in 2003. It enabled banks to process more checks, including digital image checks, more quickly than ever before. Although convenient, this exposes businesses and people to the risk of fraud. A method known as "positive pay" is one of the techniques utilized to stop such fraud.

Positive pay is an automated fraud elimination service provided by banks to business customers to prevent check fraud.

A company provides a list of issued checks to their bank on a daily basis, and the bank compares that list against checks presented for payment when clearing at Federal Reserve Banks (FRBs) or other banks.

If there is any discrepancy between the lists, such as unauthorized amounts or check numbers, the item will not be paid and will be returned unpaid to the customer's depository institution. This helps prevent fraud because it ensures that only authorized employees have access to checks.

Read more: Get Started with Banking Automation

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What are the steps in positive pay?

The fundamental positive pay steps are noted below-

Stage 1. Send Information to Bank

The check numbers, dates, and amounts of each and every check issued in the most recent check run are documented in a file that the issuing company submits to its bank on a regular basis. In order to prevent someone from fraudulently changing the payee's identity and having the payee issue payments to the fictitious firm, some banks additionally accept files from submitting businesses that include the payee's name for each check.

The issuing company sometimes sends a report to its bank, where the dates, check numbers, and proportions of all the most recently issued checks are recorded. A couple of banks similarly recognize reports from submitting companies that contain the name of the payee for each check, which should keep someone from unlawfully changing the name of the payee and having the payee issue installments to the altered substance.

Stage 2. Contrast Presented Checks with Payment Information

At the point when a check is introduced to the bank for installments, the bank employee looks at the data on the check to the data presented by the company. In the event that there is a disparity, the bank holds the check and notifies the company.

Positive Pay Workflow
Positive Pay Workflow

Read more: How to convert bank statements to excel?

Payment Fraud Trends 2022 | Nanonets Blog - Source 2022 AFP® Payments Fraud and Control Report
71% of organizations were victims of payment fraud attacks or attempts in 2021 as compared to 74% in 2020.

[2022 AFP® Payments Fraud and Control Report]

Checks, ACH debits, and wire transfers continue to remain the top 3 contributors to payments fraud in 2021.

66% of attempted/actual payments fraud was through checks. 37% of Payment Fraud used ACH debits whereas 32% used Wire Transfers.

[[2022 AFP® Payments Fraud and Control Report]]

  • Wire fraud continues to remain at elevated levels, with Business Email Compromise (BEC) a potential cause of assaults.
  • Card-related fraud is decreasing
  • Since 2012, ACH payments credit fraud has climbed steadily.
  • ACH debit fraud has reached record levels and is continuing its upward trajectory.

Read more: How to identify and prevent fraud?


Use Nanonets' intelligent automation platform with PDF scraper or PDF parser to reduce cheque frauds!


What is a positive pay file?

A positive pay file is a predefined dispensing report, which functions as a safety effort that your organization can execute.

Here is an example of a positive pay file format

Example of a positive pay file
Example of a positive pay file

The report forestalls check extortion by guiding your payment framework or bank of issued payment records and their sums. The positive pay file prevents the payment framework or bank from paying deceitful checks since unapproved payments aren't recorded on the positive pay report.

Read more:

How to extract data from unstructured documents?

How to automate manual data entry?

What is positive pay in accounting?

Positive pay is a process used by businesses to ensure that their customers' checks are paid by the bank.

If you're an accounting professional or someone who works with the financial aspect of business, then positive pay is something you may be familiar with because it's a way to ensure that the bank will not reject a check.

Read more: Accounts Payable Process

What are other check fraud preventive measures?

Positive pay and other preventative measures are typically offered as an additional service for a fee instead of being part of the financial institution's standard payment offering. This explains why positive pay from prior years has been used inconsistently.

Check Fraud Controls | Nanonets Blog - Source 2019 AFP® Payments Fraud and Control Report
While positive pay is used by the majority of organizations (around 88% in 2020) —down from 90% in 2019, there are other methods to prevent check fraud.

Segregation of accounts

The idea of segregating tasks is rather straightforward. Having access to many functions is typically required in order to commit accounts payable fraud. One would need to have access to both the check stock and the facsimile signer, for instance. Therefore, delegating tasks in a way that reduces this risk is one of the simplest strategies to avoid fraud.

To do this, it can be essential to collaborate with another group, depending on the size of the department. Alternately, regular attentive examination of anybody with many conflicting obligations is advised. Because the person in question has been with the company for a long time and has a variety of competing tasks, companies can feel overly secure. This is incorrect since long-term, dependable employees are typically the ones that perpetrate fraud.

Organizations use segregation of accounts more frequently than they did in the poll from the previous year, with 72% of them doing so.

Payee Positive Pay

The National Check Fraud Center estimates that fraudulent checks cause losses of more than $10 billion annually.

This number is continuously rising and poses a serious problem for both enterprises and banks. The banking sector created a check fraud prevention technique known as payee positive pay to counteract the problems caused by check fraud. The primary components of a check are compared with an existing record using Positive Pay, a fraud detection tool.  The bank declines to pay the cheque if one of these elements does not correspond to the data on file.

The use of payee positive pay has increased to 68% since last year.

The companies have been making a huge difference by using this check fraud preventive measure.

Daily Reconciliation

You must be aware of the activity in your accounts in order to spot a scam or fraudulent behavior. It is insufficient to merely assume that fraud will never affect you or your business. It's not if, it's when, according to security specialists in today's atmosphere. Being proactive and keeping an eye on your accounts will protect you from falling for a scam that drains your bank account.

Account reconciliation is frequently mentioned as a monthly task. In other words, a company reconciles its accounts every 30 days to check for internal irregularities. However, because money is the lifeblood of your organization, there is a risk in merely doing a monthly account reconciliation.

Post No Check Restriction

Check fraud risk can be decreased by imposing a "post no checks" restriction on accounts that are not required to accept checks as payment. Companies can also ask their bank to only conduct Automated Clearing House (ACH) transactions from these accounts, rather than checks, to further safeguard these accounts without the need to process checks.

Reverse Positive Pay

Reverse Positive Pay is a solution for a check issuing file if you are unable to do so in order to stop fraud. By analysing checks that were submitted for payment the day before and entering a decision for each check, Reverse Positive Pay gives you the tools you need to discover any dubious checks on your own.

Non-bank fraud control services

According to recent studies, 60% of all occurrences of financial fraud are attributable to staff who were not properly trained and who provided fraudulent documents.

As is the case with international banking frauds, the majority of frauds in banking institutions are discovered as a result of client complaints or some other outside tip. Consistent client education on fraud prevention measures is one of the greatest strategies to manage fraud in banks.  Businesses may use all the technology they want, but the real solution won't come about unless the public is aware of the risks.

Daily reconciliations and other internal procedures (68 per cent of respondents), payee positive pay (68 per cent), and the restriction "Post no checks" on depository accounts are other strategies that are frequently used to prevent check fraud (54 per cent).


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What is positive pay for checks?

Positive pay is a system that helps businesses avoid paying for fraudulent checks. Positive pay ensures that the person writing the check has the funds to cover it, thereby preventing losses from bad checks.

For example,

  • John Doe writes a check for $100 to ABC Company,
  • Bank can use positive pay to check his bank account and ensure he has at least $100 before they deposit his check into their own bank account.
  • Bank would then be able to clear the funds through their own accounts without any issues or potential losses due to fraudsters attempting to write fake checks.

Read more: Ultimate guide to document verification

How does positive pay work for businesses?

Positive pay is a system used to ensure that checks are only written to customers who have enough money in their accounts to cover the check.

Under positive pay, if a company issues a check, it will first use an electronic funds transfer (EFT) or wire transfer to collect money from the customer's bank. The funds are then placed with the issuing bank as collateral for payment of the check. If these funds aren't available at the time of issuance, the check cannot be issued until they become available.

For instance, let's say Sally uses Chase for her business banking and she’s enrolled in Positive Pay (which, at Chase, is called “Check Protection Services”).  The procedure is as follows:

  1. For each check Sally writes, she provides Chase with the check number, account number, and amount. (She downloads a file or manually inputs this data into her banking interface.)
  2. Any checks provided for payment are verified by Chase using the data Sally supplies.
  3. Chase handles the payments if the checks are identical. Chase notes them as "exception items" and alerts Sally if any of them don't match.
  4. After seeing the exceptions in her account, Sally signs in to inform Chase whether she wants to pay or return the things.

Read more: How to get started with Enterprise Automation and Insurance Automation

What are the benefits of using Positive Pay?

With positive pay, your business clients can provide you with a document of the checks they issue, and when you get checks drawn on their records, you can easily compare them with the data in the document to guarantee the checks are legitimate. To draw in business clients to your monetary establishment, positive pay offers a large number of advantages:

Reduces Check Fraud

Banks provide Positive Pay, a cash-management service, to assist businesses in identifying and guarding against possible check fraud. Checks submitted for processing are compared with corporate records by the service. The bank won't execute the check if the check's number, amount, payee name, and account number don't match the list given by the company. For companies in the wine sector, this offers a variety of advantages.

Outperforms Reverse Positive Pay

Monetary organizations that don't automate positive pay frequently go to a reverse positive pay framework, where you furnish your business clients with a rundown of the checks introduced from their record consistently and hang tight for them to support the checks manually.

Since you are sending a considerable list each day, this cycle requests a greater number of assets than positive pay, and it likewise puts extra weight on your business clients. Instead of supporting or denying an intermittent dubious check, your clients need to go through a list of every one of their checks each and every day.

As well as putting extra weight on your clients, this infuses unwanted deferrals into the check changing out the process on your end and can falsely expand your client's account balance record if they take a long time to stamp specific checks as legitimate.

Automates Fraud Prevention Processes

Positive compensation assists your monetary organization with saving time and assets. Without automated positive pay arrangements, you might need to audit business checks physically and reach clients via telephone or by means of email when you face an issue.

If you utilize a manual methodology for surveying business checks, your monetary organization is bound to acknowledge fake checks written on business financial accounts, and if your client reports misrepresentation sometime later, tidying up the issue takes time and cash. Via computerizing this procedure, you decrease misrepresentation, while diminishing exertion and safeguarding worker assets.

Examines Payee Information

If you've proactively executed positive pay solutions at your monetary institution, you figure out the advantages of this arrangement, however positive pay goes above and beyond. Conventional positive pay arrangements just take a look at check information, for example, check numbers. They don't check the payee data. By adding this extra layer of investigation, positive pay gives considerably more advantages to both you and your clients.

Offers Value

Positive Pay, which is offered by your bank, enables wineries to secure their assets, gain more control, and streamline company procedures.

Positive Pay gives wineries the knowledge they need to spot questionable check activity before it might hurt their company. By doing this, the winery protects its reputation and lowers the possibility of financial loss.


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What are the cons of using positive pay?

While the idea of positive pay may seem like a straightforward solution to the problem of stopping employees from stealing payroll funds, there are several important drawbacks to consider.

Expensive

First, positive pay is an expensive solution. It requires that you have a bank account dedicated solely to your payroll deposit and withdrawal needs (which means paying separate banking fees), as well as hardware to process transactions. In addition, you will need software that can manage this system on your behalf—and while some software options are available at no cost or at low prices, others require significant investment in both money and time spent learning how they work.

Time Consuming

Second, positive pay is a time-consuming solution: it will take more time than simply mailing checks out every two weeks or so. Positive pay requires regular monitoring of employee accounts and immediate action when any irregularities occur (and if you miss these irregularities in real-time, they could lead directly to theft).

Knowledge Gap

Third, creating and maintaining an effective positive payment system requires knowledge of human resources law as well as basic computer science principles; if either of these areas is unfamiliar territory for you personally then implementing positive payment may be difficult indeed! Even once implemented successfully however there's still maintenance needed such as keeping track of which employees have been paid each month (in case someone leaves) or dealing with those who may need special attention due to being new hires/terminated etc; so overall it takes more effort than just sending out paper checks each paycheck cycle which would cover all bases automatically."

How to Avoid Positive Pay?

Positive Pay is a system that stops payments from being made to employees who have been terminated or have left the company.

If you are not using this feature, you are putting yourself at risk of making an accidental payment to an employee that no longer works for your company.

The best way to avoid this situation is to set up Positive Pay in advance so that new employees can be added automatically as they join your team and then removed when they leave.

Where Positive Pay isn’t enough?

While Positive Pay is a great way to control your risk and costs, it’s not the only tool you need. You should look at additional ways to protect yourself from fraud and chargebacks.

Here are some examples of where Positive Pay isn’t enough:

Chargeback protection

Chargeback rules vary by the processor but generally include situations where the cardholder claims unauthorized or non-receipt of goods or services. To prevent these, be sure to follow best practices like having policies in place so customers can contact you with questions, keeping records of orders made online or over the phone (even if they don't use credit cards), and making sure all employees understand what's expected out of them when handling payments on behalf of your business, etc.

Over-the-counter Fraud

Some banks don't propose over-the-counter verification, where tellers at a retail banking area can check approaching checks at the financial counter, utilizing your check record. While using Positive Pay, ensure your bank confirms check data against all check-changing out situations, not when checks are sent or filtered.

Payee Verification

In spite of the advanced solutions today, many of the  Positive Pay administrations don't cover verification of the payee. Positive Pay just confirms checks through the data it contains, for example, check numbers, dollar amounts, dates, and so on. Fortunately, a few banks give a Payee Positive Pay. However, bank Positive Pay typically accompanies an extra charge. Subsequently, organizations ought to initially dissect whether their special business needs incorporate Positive Pay prior to going overboard cash.

Varying Templates/Formats

There are a few different transmission designs in which check information can be submitted to a bank. Not all banks utilize a similar transmission design. Furthermore, a few banks utilize various configurations in various divisions. If your association is modifying Positive Pay as an IBM I DIY project, you might need to represent a few different check document designs. Keeping up is more straightforward assuming you execute Positive Pay through an outsider check written bundle that produces check registers in the right format for your banks.


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What is reverse positive pay?

Reverse positive pay is a variation on the positive pay concept is reverse positive pay, where the bank sends data about its check acceptances to the organization every 24 hours. After the customer reviews all the checks, the bank processes the verified checks.

All being equal, in the event that the organization doesn't endorse the checks in 24 hours, the bank will be constrained to pay the checks. Consequently, reverse positive pay isn't as effective control as positive pay.

Every business day, the organization is responsible to check all the outstanding checks sent by the bank. If the person is not sure about the check, the portal shows the digital format of the check to validate.

Which Is The Best For your Business: Reverse Positive Pay or Positive Pay?

Positive Pay and Reverse Positive Pay are similar tools that help firms, particularly B2B ones, protect their commercial dealings. As long as the execution is good, both of these effectively shield you from check fraud and undesirable liabilities.

Positive Pay and Reverse Positive Pay are two different ways that merchants can complete their payment transactions. Positive pay is a great way to avoid chargebacks because it allows you to check your customer's card directly from your terminal before the transaction takes place. This way, if there are sufficient funds in the account and the card isn't reported as lost or stolen, then you can proceed with the sale without any risk of losing money.

Reverse positive pay works in a similar manner but instead of waiting for approval from the bank before completing the transaction, it sends an instant approval number back to your POS system so that you can complete sales without worrying about whether or not they'll go through.

Despite certain parallels in their methods and outcomes, they are not the same. Positive Pay and Reverse Positive Pay differ from one other technique in a number of ways.

Authority for Review

The reviewing authority is the primary distinction between the two. We are aware that both procedures entail checking the information on bank cheques issued for commercial reasons.

The information on the bank checks is examined by the bank in Positive Pay. However, the corporation itself conducts the approval procedure for Reverse Positive Pay services. When a business organization needs to handle checks, the bank in this case notifies the business.

Reverse Positive Pay has a payment threshold that the business can define. Only when this level is achieved does the bank notify the business to process checks.

Handling Of Flagged Checks

The way flagged checks are handled is another notable distinction. Both standard Positive Pay and Reverse Positive Pay have a review deadline. It implies that the business has a deadline set by the bank within which to evaluate the highlighted bank checks.

With conventional Positive Pay, flagged checks are returned to the issuer if the firm doesn't evaluate them within the allotted period. A strategy like this provides stronger protection against fake bank checks. However, it also implies that real checks can frequently be used in large quantities, causing payment delays and other issues.

In contrast, the bank does not withhold the payment when a business neglects to examine the flagged checks in Reverse Positive Pay. The advantage here is that the bank will process your checks as opposed to interfering with the payment flow. On the other hand, this puts at risk the security of check processing and leaves you open to check fraud.

Why is a positive pay system important for customers?

A positive pay system is an important tool for businesses so that they can minimize the risk of accepting checks with insufficient funds to cover the payment. A positive pay system helps you avoid bounced checks, late fees, bad credit, and fraud. It also helps protect your business from over-drafting by making sure that every customer's check will clear before it is deposited in your bank account (or account of your choice).


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Nanonets for Positive Pay

Nanonets is a no-code workflow-based intelligent document automation software. Nanonets can be used to extract information from the check documents. The extracted information can be used to verify the authenticity of checks from the in-house database.

Nanonets is self-learning software, which means that you don’t have to create a new model for every template. It learns automatically and extracts relevant information with ease. Learn more about Nanonets.

Try Nanonets for free or book a free consultation call to see how you can use positive pay.

Conclusion

Positive Pay is a method used by banks to reduce check fraud. The system will flag any check that does not match the issue information on file. Positive Pay works by providing your bank with an electronic file of check information before each day’s batch of checks is presented for payment. If a check presented for payment varies from what was issued (e.g., amount, account number or payee), then it will be identified as fraud and rejected. This process can be automated through software such as Remote Deposit Capture (RDC) and Intuit QuickBooks Desktop Enterprise with Advanced Inventory, which also allows you to upload positive pay files directly into your accounting automation system without having to enter them into another program first manually.

FAQs

What is positive pay in banking?

Positive Pay is a banking feature intended to assist entrepreneurs with safeguarding themselves against deceitful checks being written for them. You give your bank subtleties for each check you write, then the bank confirms that your data matches the data on checks introduced to the bank before it processes the payment. In the event that things don't coordinate, your bank banners them and sends them to you for the survey. You can then choose if you have any desire to acknowledge or decline the payment.

What is a positive pay system?

Giving high-value checks just got significantly more secure. Viable from January 1st 2021, the RBI has presented an electronic confirmation system called Positive Pay that will permit you to share the check subtleties with your bank before the bank processes it. This extra security layer is intended to address the rising examples of check extortion that have stood out as truly newsworthy over the course of the last year. As detailed by the RBI, the complete volume of misrepresentation exchanges in India was fixed at Rs. 64,681 crores during April and September 2020 with forged or fake cheques accounting a significant share. Thus, as culprits' techniques for falsifying checks become more complex as time passes, the launching of Positive Pay is most certainly a jolt for banks.

What is ACH positive pay?

Organizations utilize the Automated Clearing House (ACH) system to send and get payments inside the United States. ACH empowers electronic bank-to-bank moves like direct store and merchant payments. To keep these kinds of payments secure, think about utilizing ACH positive pay. The ACH positive pay definition refers to a service permitting clients to survey all approaching charges before they're cleared for deposit in a financial account balance. With custom channels, you can decide to block dubious ACH charges and attributes until you've got an opportunity to approve them.

What is The Positive Pay Fee In The US?

The banks might charge various expenses for giving a Positive Pay service to their clients. A few banks offer free services for chosen business accounts. For instance, Chase is a bank that offers free Positive Pay services for qualified business accounts.

Yet, in the event that you have a business banking account with Bank of America, you'd most likely need to pay a charge for Positive Pay services. Banks typically charge the Positive Pay expense consistently or per check transaction. However, a few banks might offer a mix of the two.

The following table can provide you with a broad idea of how banks charge for the Positive Pay services it offers.

Bank

Monthly Positive Pay fee

Issued Check Fee 

Payee Matching Fee

Plumas Bank

$50 Per Account

$0 Per Check

$0 Per Item

Capitol Federal

$25 Per Account

$0.03 Per Check

$0.02 Per Item

First Premier

$40 Per Account

$0 Per Check

$0.05 Per Item

Generally, the expense of Positive Pay falls somewhere near $50 each month for a solitary business account. Notwithstanding, the expense can change in light of the financial service provider you decide for your business. Besides, a few banks offer waivers of the service fee for the initial few months.


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