Financial fraud is on the rise
In today’s evolving digital-focused world, financial fraud is more prevalent than ever. While many businesses have adopted digital payment methods, paper checks are still a central component of accounts payable (AP) processes. This leaves businesses that make vendor payments via check vulnerable to counterfeit and forged checks. As check fraud remains a prevalent AP fraud scheme, accounts payable teams need a targeted solution to effectively protect their businesses.
Positive pay check verification offers a powerful defense, detecting illegitimate checks before they are processed—and before they affect your business’s bottom line. The right AP automation solution can seamlessly integrate positive pay check verification, helping you reduce security risks, strengthen internal controls, and boost check run efficiency.
Key takeaways
- Positive pay check verification is a tool that can be integrated with AP automation to significantly reduce the risk of check fraud in B2B payments.
- AP automation solutions like MineralTree streamline positive pay check verification by automating the generation and transmission of check files to the bank.
- Businesses should prioritize integrating positive pay check verification with AP automation to strengthen internal controls and enhance accuracy, efficiency, and security in payment processing.
What is positive pay?
Unlike traditional methods where checks are cashed without validation, positive pay check verification is a tool that detects fraudulent checks before they’re processed, significantly reducing the fraud risk. Businesses provide their bank with a list of issued checks, which the bank verifies against the checks presented for payment. If the bank notices any discrepancies, they withhold payment until the business reviews the transaction, preventing unauthorized checks from being cashed.
How does positive pay work?
Let’s take a step-by-step look at how positive pay check verification protects against check fraud.
- Check issuance: The business issues checks to payees and records the details of each check, including the check number, issue date, payee name, and amount.
- Data transmission: The business sends the check issuance data to their bank via an electronic file.
- Check presentation: When a payee presents a check for payment, the bank verifies the check details against the data provided by the company.
- Exception handling: If the bank finds any discrepancies, like incorrect amounts or payee names, they alert the business before the check clears.
- Approval or rejection: The business reviews and instructs the bank to approve or reject the check.
Implementing positive pay can be challenging since businesses must send formatted files for all check payments to the bank for processing. However, the right AP automation tool can generate and transmit files for you, simplifying the process and minimizing errors.
What are the benefits of positive pay?
Positive pay check verification offers several key advantages that enhance security, control, and efficiency in managing payments. Let’s take a closer look below.
Fraud prevention
According to a survey by the Association for Financial Professionals, 65% of organizations experienced fraudulent check attempts last year. AP automation with positive pay can mitigate check fraud in B2B payments by proactively verifying all issued checks.
Improved control
Positive pay is a crucial line of defense within the accounts payable process. By verifying the accuracy of each check against the list of issued checks, positive pay supports payment entry internal controls to improve security and combat potential B2B check fraud in vendor payments.
Increased efficiency
Positive pay automates the review of check details, reducing the time and effort required for manual check inspections. According to the 8th Annual State of AP Report, 36% of organizations still make over half of payments via check, and over 90% use checks in their payment process. With positive pay, businesses can increase transaction security and minimize delays in their payment processing.
Positive pay vs. reverse positive pay: Key differences
While positive pay and reverse positive pay are both methods of fraud detection, they take different approaches.
Positive pay shifts the responsibility off the business and onto the bank to identify discrepencies, making it a more proactive approach to fraud detection.
In contrast, reverse positive pay places the burden on the business to identify fraudulent checks, increasing the chance of errors and making it less reilable. Rather than the company sending the bank a check-issue file, the bank will provide a daily list of checks presented for payment. Then, the company compares the list to itsrecords and instructs the bank to approve or deny payment.
How does positive pay prevent fraud?
Positive pay prevents fraud in B2B payments by adding an extra layer of oversight for check verification. When a payee attempts to cash a check, the bank references the following against the company’s issued check file:
- Check number
- Payee name
- Amount
Banks will flag any suspicious checks, and send them back to the issuer to review before releasing payment.
3 reasons to combine AP automation power and positive pay
AP automation and positive pay can work together to create a more efficient and safer accounts payable workflow. Below are three reasons to combine the power of AP automation and positive pay check verification.
- Enhanced security
- Better check run efficiency
- A smoother shift to digital payments
Keep scrolling to take a closer look at each benefit.
1. Enhanced security
Positive pay enhances the security of check transactions, but AP automation can extend this security across all payment types. AP automation helps businesses detect and prevent vendor fraud and invoice fraud, ensuring that all transactions are legitimate and authorized.
2. Better check run efficiency
By combining positive pay and AP automation, businesses can streamline the entire AP check run, from invoice approval to payment issuance. According to the State of AP Report, only 6.5% of businesses do not use any checks in their payment process. Automating tasks like check printing, mailing, and approval helps businesses avoid late fees and maintain strong vendor relationships.
3. A smoother shift to digital payments
Since checks are highly susceptible to fraud, transitioning to digital payments is crucial for businesses to further mitigate risk. AP automation provides convenient options for businesses to enroll their vendors in digital payment methods, simplifying the shift from paper checks to more secure and efficient electronic payments such as virtual cards.
Did you know? MineralTree can help you enroll vendors in digital payment methods, targeting one of the biggest pain points for AP teams, as found in MineralTree’s State of AP report.
Final thoughts
With the risk of check fraud on the rise, businesses need to take action now. MineralTree’s AP Automation solution allows you to seamlessly integrate positive pay check verification for greater efficiency and fraud protection. Unlike other providers, MineralTree offers payee verification, along with continuous monitoring from our support team.
Book a demo to learn how MineralTree can streamline your AP processes and enhance safeguard your payments.
Positive pay FAQs
Tl;dr? If you’re short on time the frequently asked questions below provide a quick snapshot of what you need to know about positive pay check verification.
1. What is ACH positive pay?
ACH positive pay is a fraud prevention tool that applies the principles of positive pay to ACH payments, ensuring that only authorized ACH debits and credits are processed by verifying transaction details against issued records.
2. What should be included in a positive pay file?
A positive pay file typically includes the issuer’s account number and the check’s issue date, payee name, dollar amount, and check number. This information is used by the bank to verify checks presented for payment. A solution like MineralTree automates the generation and transmission of check files to the bank for all authorized check payments.
3.How much does positive pay cost?
MineralTree charges a one-time fee for integration with the bank, with no additional transaction fees. Some banks may charge an additional fee at their discretion.
Still, it’s important to remember that the FBI estimates a whopping $18.7 billion is lost from check fraud each year. The one-time fee to set up positive pay and reduce potential fraud will save your business money in the long run.
4. What kinds of companies benefit most from positive pay?
Positive pay benefits all businesses that use checks. However, it can be particularly valuable for businesses that handle a high volume of check transactions for vendor payments. MineralTree offers professional services to help businesses of all sizes and industries correctly implement check positive pay with their banks.
5. What are the limitations of positive pay?
While positive pay is highly effective in preventing check fraud, it does not address other types of payment fraud, such as ACH fraud. An end-to-end accounts payable process like MineralTree can help businesses further minimize fraud risks and increase efficiency.
