The world is moving towards digital payments, mobile wallets, and real-time transfers. Yet, many businesses in America rely on outdated paper checks because they view them as a safer option.
The reality is different. Checks are one of the easiest payment methods for fraudsters to exploit. Criminals can alter amounts, forge signatures, or duplicate check numbers. In 2024, nearly two-thirds (63%) of businesses dealt with attempted or actual check fraud.
To reduce exposure, many organizations now outsource payment processing to trusted providers that use secure digital systems and advanced fraud detection tools. That is an excellent option. Besides that, there are several other things you can do to protect your business from check-related fraud. We’ll discuss some of them here.
#1 Implement Dual Authorization for Check Issuance
The single greatest defense against internal and external check fraud is dual authorization.
It requires two different people to authorize a financial transaction. The first person, the maker, initiates or drafts the check request. The second person, the checker, must then independently review and approve the activity. Thus, it’s also known as the maker-checker system.
This process protects your business in two ways. First, it helps employees catch unintentional human errors before they cost you money. Second, it creates a powerful deterrent against internal fraud like embezzlement. It establishes clear accountability for every dollar that moves.
To maintain efficiency, implement a dollar threshold for dual authorization. Small checks below $10,000 might, for instance, only need one manager’s approval. But checks exceeding that amount must have two independent signers.
Dual authorization can only work when two people are independent of each other. Do not allow a supervisor to approve transactions created by their direct subordinate, or vice versa.
This system makes it far harder for an employee to issue fraudulent checks or manipulate records. Plus, it ensures that any suspicious or duplicate payments are caught before funds are released.
#2 Secure Your Check Printing Process
Treat your blank paper check stock as if it were a roll of cash. Remove all unused checks from printers and securely lock them up. If your company uses signature stamps or software for signing, lock those, too.
Standard office supply checks are simply too easy to copy or alter. You must purchase high-security business checks with built-in fraud features.
Look for anti-washing features like chemically reactive paper. If a fraudster tries to wash the check using solvents, the paper reacts and makes the alteration visible. Using a permanent black gel pen further deters washing, as the ink soaks into the fibers.
For anti-counterfeit protection, ensure checks include features like watermarks. These are visible only when held up to the light.
Print checks using magnetic ink character recognition (MICR) toner. SmartPayables explains MICR as a specialized magnetic ink/toner that prints key financial information (routing and account numbers) on the bottom of a check.
This allows bank computers and processing equipment to read the characters. Thus, forging the check or altering it becomes difficult.
In 2023, the majority of payment fraud originated from forged checks, besides stolen cards and identity theft. That makes MICR toner essential for printing checks.
#3 Use Positive Pay
Most banks in the U.S. offer Positive Pay. It’s an automated fraud detection service where banks compare every check presented for payment against a list of authorized checks you provide.
Whenever you issue checks, you upload an electronic issue file to your bank. This file contains the check number, the dollar amount, and the account number. When a check is presented for cashing, the bank compares the physical check details against your list.
Any item that doesn’t match is flagged as an exception. The bank then sends the exception list back to you, so you can decide whether to pay or return the item. This prevents unauthorized checks from ever clearing your account.
In 2023, the Positive Pay system prevented about $1.4 billion of check fraud. Don’t use the Standard Positive Pay, however. It fails to protect against check washing. It’s a process where fraudsters steal legitimate checks from the mail, chemically erase the payee name, and write in a new name.
Use the advanced version called Payee Positive Pay. It includes the payee’s name in the electronic file you send to the bank. The bank verifies the payee’s name alongside the number and amount, which helps protect against altered or washed checks.
Securing Your Entire Payment Ecosystem
Check fraud may sound like an old-school crime, but it’s evolving in sophisticated ways.
Criminals are constantly finding fresh tactics, from intercepting mail to creating near-perfect counterfeit checks. The best defense comes from disciplined habits and well-designed processes, not complex or costly technology.
Implement these tips, and you’ll have a robust defense system that keeps your business and your reputation safe. You’ll sleep better knowing your money is protected.
