What Is a Positive Pay File and How Does It Work?

Understanding Positive Pay

Positive Pay is an automated fraud detection system designed to protect businesses from financial losses due to forged, altered, or unauthorized checks. Businesses provide their bank with a list of all legitimately issued checks. When a check is presented for payment, the bank cross-references its details against this list. This proactive approach helps ensure that only authorized payments are processed, thereby significantly reducing the risk of check fraud.

The “Positive Pay File” specifically refers to the electronic data file containing these issued check details. This file acts as a communication bridge between a company’s accounting system and its banking institution. Leveraging this system provides an enhanced layer of security for disbursed funds, helping maintain financial integrity and prevent unauthorized debits.

The Positive Pay Process

The Positive Pay process starts with a company generating an electronic file from its accounting or enterprise resource planning (ERP) system. This file contains specific details about each check the company has issued. File creation typically occurs daily or as checks are printed, ensuring the bank has the most current information available.

The company then securely transmits the file to its bank. This transmission often happens through a dedicated online banking portal, a secure file transfer protocol (SFTP) connection, or other encrypted electronic means. This secure transfer method protects sensitive financial data during transit.

When a check is presented for payment, the bank’s system automatically compares the check’s magnetic ink character recognition (MICR) line data—including the check number and amount—against the Positive Pay File. Many systems also include the payee name in this comparison to enhance security. If all details match, the bank clears the check for payment.

If a discrepancy arises, the bank identifies it as an “exception.” Common exceptions include differences in check number, amount, or payee, or if a check number was not in the file. The bank notifies the company, typically through an online portal or email, providing details of the suspicious item. The company reviews the exception and instructs the bank whether to pay the check or return it as fraudulent. This decision-making process usually occurs within a short 24-hour window to avoid payment delays or potential financial loss.

Data Elements of a Positive Pay File

A Positive Pay File contains specific data elements for each issued check, enabling the bank to accurately verify presented items. These elements include:

Check number: A unique identifier for each payment instrument, allowing the bank to track individual checks.
Check amount: Represents the exact monetary value of the payment and must precisely match the amount presented.
Issue date: Indicates when the check was written, providing temporal context and helping identify stale-dated or prematurely presented checks.
Payee name: Specifies the recipient of the funds, adding another layer of verification, especially in systems that support payee matching.
Company’s bank account number: The account from which the check is drawn, ensuring the payment is associated with the correct originating account.

Some files may also include optional fields, such as void indicators for checks that were issued but subsequently canceled, or specific codes for internal tracking purposes.