Caution: Some people believe that if they use Positive Pay, they do not need to use high security checks. This is a serious misconception.
An analogy will illuminate this misconception: Using Positive Pay is like catching a thief standing in your living room holding your jewels. While it is good that the thief was caught, it would be preferable to have the thief look at your house and decide to go next door. This is where high security checks are important. They DETER, or discourage, the criminal from attempting fraud against your organization. Both high security checks and Positive Pay are imperative for an effective check fraud prevention strategy.
A company electronically sends information to its bank about the checks it has written. This is called a check-issue file. The check-issue file contains the account number, check number, issue date, and dollar amount of each check. Sometimes the payee name is included, but it is not always part of the Positive Pay service. A check-issue file should be sent to the bank each day checks are written.
When a check is presented at the bank for payment and 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 company. The company reviews the item and instructs the bank to either pay or return the check.
There is generally a fee charged by the bank for Positive Pay. The fee might well be considered an "insurance premium" to help avoid check fraud losses and liability.