Positive pay and reverse positive pay are systems used by businesses to eliminate check fraud. These plans are designed to stop thieves and con artists from cashing fake checks or changing the amounts to be paid from the company's checking account.
Positive Pay System
Reverse Positive Pay
In a reverse positive pay system, the company maintains the list of issued checks and the bank sends a list of checks that have been submitted for payment. The company compares the information from the checks at the bank to the list maintained in the company. If a check is good, the company OKs the bank to pay. If corrections must be made, the company handles the changes. If a bad check is presented to the bank, it is not paid and the company is not defrauded.
A reverse positive pay system allows a company to monitor its outstanding checks and checking accounts on a daily basis. The presented checks are sent every day by the bank and the list is reviewed, letting the bank know which checks to pay. A reverse positive pay system can be viewed as a daily check of checking account activity versus waiting until the end-of-month statement arrives and the account is reconciled. The daily check will prevent any fraudulent checks from being paid by the company.
A reverse positive pay system requires that a company employee check the presented-for-payment checks against the issued check register every day. If the company writes a lot of checks, this process may take a significant amount of an employee's time. The company must weigh the cost of making the daily comparisons against the possible losses from check fraud. Each company will have a different situation concerning the number and dollar amount of checks written.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.