Preventing Positive Pay Problems
Positive Pay is a feature offered by banking institutions that provides an additional safeguard to ensure that the check sent to someone matches the one that being deposited. According to the AFP (Association for Finance Professionals), paper checks still make up nearly 50% of B2B payments and 63% of B2B payments for businesses with less than $1B in revenue. And while the overwhelming number of checks are legitimate transactions, the potential for fraud still exists.
Operationally speaking, Positive Pay does require an additional step by accounts payable staff who must send a file to their bank that lists check numbers, dates, payee name, and amounts of all checks issued in the most recent check run.
When the payee attempts to cash or deposit the check, the bank checks it (pun intended) with the Positive Pay information submitted. For any discrepancy, the bank holds the check and notifies the payer.
Positive Pay is a powerful fraud protection feature, but does have some shortcomings as a result of manual check runs by accounts payable teams.
For one, the payer company must provide the file regularly to the bank to validate payments so that payments are not inadvertently rejected. The file also needs to arrive at the bank before the check is cashed. A misstep or vacation by someone on the AP team and false positives could occur. The file should also include one-off, ad-hoc manual checks that might be made throughout a given day, otherwise, they could end up as problems. And finally, banks often charge for Positive Pay services, so some businesses opt to only use it for some transactions rather than all of them.
The good news is that Tipalti automation solves all of these issues. How?
Submissions to Positive Pay are part of the overall automated payment process. In fact, payments for every method (ACH, wire transfers, international bank transfers, PayPal, paper checks, etc.) are all communicated with the banks at the same time. For paper checks, this ensures that every check issued is associated with its Positive Pay data which is electronically submitted at the same time that the check requested.
For checks cut manually outside the scope of Tipalti, they actually come from another bank account rather than the Tipalti managed account, so a separate Positive Pay process is required.
That said, Tipalti recommends that you avoid manual checks whenever possible. They’re more difficult to reconcile later during financial close and certainly don’t have the visibility afforded within the Tipalti Payer Dashboard where you and your payees can view the status and payment history anytime you need. If you need to send checks out every day, simple payment files can be uploaded to Tipalti to have checks cut every morning.