How does positive pay help in preventing cheque fraud?

Positive pay is an important antifraud feature in the handling of cheques. It primarily functions by matching the cheque details that a company has issued with the cheques that are presented for payment. When a company uses positive pay, it creates a list of cheques issued, which includes details such as cheque numbers, amounts, and payee names. When a bank receives a presented cheque, it cross-references the details of that cheque against the list provided by the company.

This matching process allows the bank to verify whether the cheque was indeed authorized and issued by the company. If there is a discrepancy, such as a cheque number that does not match or an amount that is incorrect, the bank will either alert the company or refuse to process the payment, thereby preventing potential fraudulent activities.

In contrast, authorizing cheques before payment might provide an additional layer of control, but it does not specifically target the discrepancies that could arise from counterfeit or altered cheques. Delaying payment of all cheques does not distinguish between valid transactions and fraudulent ones, reducing operational efficiency. Finally, providing a cash forecast is beneficial for financial planning but does not directly contribute to fraud prevention in cheque transactions. Hence, the matching system is why positive pay is particularly effective in combating cheque