What Is Positive Pay?

by Chad Buleen; Updated September 26, 2017

Because banks are in the business of making money -- not losing it -- all banks employ methods and services to help ensure that the money they deal with on a daily basis is honest money and that no fraud occurs. One of the ways many banks do this is by using Positive Pay, a service provided for a fee to banks and companies that allows them to verify that checks going through the bank are funded properly.

How it Works

When a company issues payroll or other types of checks, the company also provides its bank with a list of check numbers and the amounts of each of these checks. This list goes into a database in the bank's computers. As check recipients begin to deposit or cash their checks and the checks are presented back to the bank for payment, the bank double-checks the check numbers and dollar amounts to ensure they match the numbers on the list. If both numbers are not the same, the check does not go through.


When the numbers on a check presented to the bank do not match the numbers on the company-provided list of distributed checks, this does not absolutely mean that the check will not clear. A bank representative can contact a payroll representative at the company that distributed the check and ask if the check should clear. If the company representative finds there was a clerical error or other minor problem, she can clear the bank to fund the check.

File Transmission

Because some companies -- such as payday loan lenders -- offer several checks every day, transmitting the Positive Pay database files must be simple to make the program easy to use. Positive Pay software allows the full process to be automated, including being able to transmit the database files of checks through an FTP server, by email or uploaded on the Web.

Initiator of Use

In some instances, banks already use the Positive Pay program with their customers. The client company then may be responsible for paying a fee to use the service. Some banks use the program without requiring its customer companies to contribute to a fund paying for the service. In other situations, the company might initiate the use of Positive Pay and then must get the bank on board to use the program as well.