Positive Pay Fraud Protection: What Every Business Owner Needs to Know

Check fraud isn’t a relic of the past. Despite the rise of digital payments, criminals still target paper checks and ACH transactions because they remain vulnerable points in the payment chain. For businesses that issue payroll checks or process vendor payments, a single fraudulent transaction can mean thousands of dollars lost and weeks of headaches trying to recover funds.

Positive pay fraud protection offers a straightforward solution. It’s a verification system that catches fraudulent checks and unauthorized ACH debits before they clear your account. Here’s how it works and why it matters for your business.

How Positive Pay Works

The concept behind positive pay is simple: verify before you pay.

When you write checks or authorize ACH payments, you provide your bank with a list of the transactions you’ve approved. This list includes details like check numbers, payment amounts, payee names, and transaction dates. When someone presents a check or initiates an ACH debit against your account, the bank compares it to your approved list.

If the details match, the transaction processes normally. If something doesn’t line up (a different amount, an unfamiliar payee, a check number you never issued), the bank flags it as an exception and alerts you. You then decide whether to approve the payment or reject it.

This puts you in control. Instead of discovering fraud after the money is gone, you catch it while you still have time to act.

Check Positive Pay vs. ACH Positive Pay

Banks typically offer two flavors of positive pay protection, each targeting a different type of fraud.

• Check Positive Pay protects against forged, altered, or counterfeit checks. When criminals wash checks to change the payee name, create counterfeits using stolen account information, or alter dollar amounts, check positive pay catches these discrepancies by matching every presented check against your issued check file.
• ACH Positive Pay guards against unauthorized electronic debits. ACH transactions are convenient for payroll, vendor payments, and recurring bills, but that convenience cuts both ways. If someone obtains your account information and routing number, they can attempt to pull money from your account. ACH positive pay lets you create a list of approved originators and transaction limits, blocking anything that doesn’t match.

For comprehensive protection, businesses benefit from implementing both.

Why This Matters for Payroll

If your business issues payroll checks, positive pay becomes especially important. Payroll checks are predictable targets because criminals know when they’re issued and can anticipate the dollar amounts. A stolen or intercepted paycheck can be washed, altered, and cashed before anyone notices.

Businesses using direct deposit aren’t immune either. Payroll-related ACH fraud schemes continue to evolve, with criminals attempting unauthorized debits by impersonating vendors or manipulating banking information. ACH positive pay adds a layer of verification that stops these attempts before they succeed.

Beyond direct financial loss, payroll fraud creates compliance headaches. Reissuing payments, documenting incidents, and managing employee concerns all consume time and resources you’d rather spend elsewhere.

The Real Cost of Check Fraud

When evaluating whether positive pay is worth the fees your bank charges, consider what fraud costs when it succeeds.

The immediate loss is obvious: whatever amount the fraudster steals. But the secondary costs add up quickly. Staff time spent investigating the incident, filing reports, and communicating with the bank. Legal fees if recovery requires legal action. The administrative burden of reissuing legitimate payments to employees or vendors who were affected. And the harder-to-quantify impact on your reputation when partners or employees lose confidence in your financial controls.

A single prevented fraud incident often covers years of positive pay service fees.

Getting Started with Positive Pay

Setting up positive pay requires coordination with your bank, but the process is straightforward. You’ll need to establish a method for transmitting your check register or ACH authorization list to the bank, typically through an online portal or automated file transfer. Your bank will walk you through their specific requirements and help you configure exception alerts.

The key to making positive pay work is consistency. Every check you issue needs to appear on your transmitted file. Every approved ACH originator needs to be on your authorization list. Gaps in your data create gaps in your protection.

If you work with a payroll provider, ask how they support positive pay integration. Many payroll systems can generate the check files and ACH authorization data your bank needs, reducing manual work and ensuring accuracy.

A Practical Layer of Defense

No single tool eliminates fraud risk entirely. Positive pay works best as part of a broader approach that includes internal controls, employee training, and secure handling of financial information. But as fraud prevention tools go, positive pay offers an excellent return on investment: straightforward to implement, low maintenance once running, and highly effective at stopping the most common payment fraud schemes.

For businesses that issue checks or process ACH transactions, it’s worth a conversation with your bank.