Positive Pay

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DEFINITION of 'Positive Pay'

A cash-management service employed to deter check fraud. Banks use positive pay to match the checks a company issues with those it presents for payment. Any check considered to be potentially fraudulent is sent back to the issuer for examination.

BREAKING DOWN 'Positive Pay'

Although it is effective at catching bad checks, the positive-pay system costs more than other systems. For example, the reverse positive-pay system requires check issuers to self-monitor; the issuer must then alert the bank when it declines a check. This method, while cheaper than positive pay, is not as reliable.

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