By Cooper Melvin, CPA, JD
Due to a recent checking account fraud scheme in the local news, as a business owner or checking account holder, you may be wondering how you can avoid falling victim to this potential threat. While there are different steps you can take, one approach we have found is through a method known as “positive pay.” Positive pay is a service offered by most commercial banks, sometimes for an additional charge, to detect and deter fraud. Each bank uses the service a little differently but, essentially, you provide a list of the checks you write each day (including check number, amount, and account number) to your bank, they automatically match the list to the checks issued and alert you to any mismatches. The bank will then withhold payment until you confirm that the payment is legitimate.
However, if you forget to deliver the list of checks to the bank or do not respond to a notice within a reasonable timeframe, the bank might decline every check for that day. Therefore, you also have the option to use reverse positive pay. In this scenario, the bank sends you a list of checks it is about to clear and you must approve the checks that are valid. If you do not respond within a reasonable number of days, the bank will typically clear the checks, regardless of your failure to respond. This method requires more work on your part, and is slightly more vulnerable to fraud if you fail to respond timely, but prevents the bank from incorrectly rejecting checks and keeps your payments flowing out on time.
If you have any questions about positive pay or reverse positive pay, please contact your bank for more details. Furthermore, if you are a victim of theft, please contact your BMSS professional to learn how theft may impact your taxes.