What Is a Positive Pay Exception & How Do You Respond?

A Positive Pay system is a fraud prevention service that helps businesses protect their bank accounts from unauthorized transactions. It functions by comparing checks presented for payment against a list of checks that a business has legitimately issued. This automated process acts as a safeguard, ensuring that only authorized checks are processed and paid from a company’s account. A Positive Pay exception occurs when there is a discrepancy between the details of a check presented to the bank for payment and the information on the business’s list of issued checks.

Identifying a Positive Pay Exception

Banks using a Positive Pay system receive a digital file from the business containing details of all checks issued. This file includes the check number, dollar amount, account number, issue date, and payee name. When a check is presented for payment, the bank’s system electronically compares its details against this submitted file.

An “exception” arises if key details on the presented check do not match the information in the business’s issued check file. For instance, a mismatch could be triggered by an incorrect check number, a different amount, an altered payee name, or an unauthorized date. When such a discrepancy is identified, the system flags the item, preventing the immediate payment of the check. The bank then notifies the account holder of the flagged item for review and a decision.

Common Causes of Positive Pay Exceptions

Positive Pay exceptions can occur for various reasons, some legitimate and others indicative of attempted fraud. A common legitimate cause is a simple data entry error when the business initially records the check information or transmits the file to the bank. This could involve typing an incorrect check number, entering a slightly different amount, misspelling a payee’s name, or using an incorrect issue date.

Another non-fraudulent reason for an exception is the accidental use of a duplicate check number, or a check being presented for payment that was issued before its Positive Pay file was submitted. Occasionally, a check that has been legitimately voided or stopped is presented, triggering an exception.

Beyond clerical errors, exceptions also identify potentially fraudulent activity. The system flags checks that are counterfeit, have altered amounts, or have a changed payee name, as these will not match the authorized details. While the system itself doesn’t determine fraud, it acts as an early warning system by highlighting items that deviate from authorized parameters, prompting the business to investigate further.

Responding to a Positive Pay Exception

Upon notification of a Positive Pay exception, the business must promptly review the flagged item. Banks provide access to an online portal where images of the exception checks and their details are available. This review allows the business to compare the presented check against its internal records to determine the item’s legitimacy.

Following this review, the business must make a decision: either “Pay” to authorize the check for payment or “Return” to decline payment. Choosing to “Pay” confirms the check is legitimate despite the discrepancy, instructing the bank to process the transaction. Conversely, selecting “Return” indicates the check is unauthorized or fraudulent, and the bank will decline payment.

Banks impose a strict timeframe for making these decisions. Failure to respond by the deadline may result in the bank applying a default decision, which is often to “Return” the check to protect the account holder, though some services may default to “Pay” if no instruction is received. Decisions are communicated back to the bank through the online portal.