Managing Positive Pay with Attorneys

Welcome to Accountants Law Pod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Steven Libhart.

Well, welcome back everyone. It's, it's Steve and I today. We just— you and I, my friend, which is—

Hello, hello, hello. How you doing?

Good. How are you?

Good. It's Monday and it's hot.

Yes, it's gonna be hot here too. So Lynda is out this week for, for family items and wishing her all the best with that. I know you've got a lot going on as well, my friend. So it's just nice.

Well, we wanted to be adults, and here we are.

Here we are.

Got it. I know we've got an interesting topic, but before that, how has your week been? How has summer been so far for you?

It's been good. You know, I like this time of year because we get to catch up.

Yeah, that's true.

You know, we get to catch up and we get to kind of plan for avoiding year-end craziness and, you know, being able to touch base with clients more and, you know, dive deeper into things and just kind of prep them for tax extensions that are still needing to be done. And—

Well, we're gonna have a lot of changes coming up.

I know.

So that's gonna be—

Isn't that in 2025 though, right?

Well, I don't know how to answer that correctly because I know that I've seen some things be effective, like conversations or little highlights coming through my email box. So I just need to sign up for a course before I can truly answer that. But there are, yes, there are 20 this year, but there are some comments about, like, how immediate some of the effective changes are and what's still in process, because there's some things that are for future '26 or '27. So I'll refrain from answering too much because I'm not exactly sure, and we'll have to learn like everybody else because our side of it will support what the ultimate tax things are going to be doing.

I'm glad you're saying this because You know, we're going to start getting peppered with questions and won't have the answers.

Yeah, we're all learning them together.

Learning together.

Yeah, because there's been so much changes to it, so I just see like nuggets of pieces.

So, um, well, and I saw several of the— several of the things that I looked at, by the time they get into place, then they expire.

Yeah, exactly.

They don't— they don't live very long in this, the bills.

Exactly. So like some of these EV credits that are out there, there's other things like that. It's going to be— there's going to be a lot of things. So it'll be a roller coaster, kind of as it was disseminating it the last time when big changes were made.

But I can't remember what it was I read about K-1s, but I— yeah, but I read something on K-1s. I was like, whoa.

Yeah. Big changes. With that is changes due to a lot of fraud and some of the things that we're experiencing, and a lot more frequently, and a lot of the service changes that we've had to do. So we're going to talk about managing positive pay for law firms. I know that's something that we've had a lot of experience in of late, even further with regards to outside of just positive pay on a trust account. It's also on the operating account, on multiple accounts. And ACH is a part of that, not just checks. So, and it's an additional protection layer. It's an additional payment that, you know, you make for a service provided by the bank. It comes with a whole suite of authorizations and how to do it and a whole, a whole mess of things that you have to do differently. But—

What kind of pricing are you seeing on positive pay before we jump into the nuts and bolts on it?

I don't know specifically because I don't see the actual terms. You know, some of these corporate or these higher-level business banking Suite of offerings. I do see a bump in the fees, uh, depending on—

Kind of packaged in.

Packaged in. But you know how some of the banks, if you're over a certain threshold or you have so much, you don't pay certain fees or you get a discount. Um, so I, I can just say that the nuances and the adjustment for either us and/or the owner of the firm or employees that are working in the firm and all the protocols that go with it It can be quite extensive depending on the bank, what side of the platforms you live on, because each bank will operate slightly differently. You have to go to a new portal for that kind of stuff. And then how ACH works in addition to that is, is also another piece. But there's, there's so many layers to it. So I think we could just dive in, I guess, into some of the pieces.

Sure.

Um, sure.

So, you know, starting out, what is positive pay?

So, so it's a— it's really, essentially, in the beginning, it's preventing check fraud, right? So you would hypothetically— you are working in— I'll just do it from working inside the firm. You're printing off checks. Uh, let's use the operating bank account. And those checks that get printed, you would, um, send those off. But what you would do is initially set up a template that you would load into the bank and say, this is the check date, this is the maker, who it's being paid to, the recipient that it will receive it, the amount, and the date. And that daily is uploaded to the bank in order for the bank to authorize and clear the check. If the bank doesn't have that check detail, it will not clear the check. The check will bounce automatically. It will just get declined because It's meant for check fraud. But what we have seen, and Steve, we were just talking about this offline, is the ACH piece of it as well. Because not only do you have check fraud, which I feel like, Steve, don't you, we've seen a huge abundance.

Oh, sure, sure.

Yeah, like quite literally people that don't even have checks from the firm are making rubber checks and clearing those. I've seen that quite a bit. So anyways, the ACH one is where you basically identify your recurring ACH. We have to permit ahead of time what ACH codes are allowed to go through.

Oh, like a law firm might have a vendor, will use their software vendor.

Okay.

Yes.

Yeah. They would say, you know, Clio or LeanLaw or whoever is authorized to take ACH transactions. Now, do you know if they're limited to the exact same dollar amount every month, or can that be a little flexible in the ACH environment? Because sometimes those, like Microsoft, a Microsoft account will have lots of variables to it and its expenses. And so that's one that, that I'd like to learn a little bit more about.

That's a good— I'm just going to see if I have it in my notes here on that piece. I feel like I've run into issues from my own experience in working with firms where the ACH identifier changes, so it doesn't permit, or the pricing changes to your point. So you have to— it is a lot of extra work, but—

Because, you know, sometimes they, they don't know.

They don't know.

I'm going to use Microsoft again. Sometimes they'll have these fluctuating— or here's a good example. A law firm has some turnover, so they have to turn off— Steve and Sarah are no longer with the firm. They have to turn them off so that they're not billed anymore. And yet, so then the amount would change. So there's, there's some things to ask, I would think, about their rules.

Wouldn't you think, Steve, like some of the items you would just like set up a subscription-style credit card or, you know, some of these newer banks that offer only subscription-only style, and then you could pay that. For, for safety and security, because it, it does happen to people where they've turned it off. They said they canceled, and maybe the annual cancellation didn't go through, but you have the email or something to that effect. But there are— I do see some hiccups with the ACH piece as well. We've seen some hiccups with the check writing. So the checks are printed out of order. The checks are—

Right.

Happen to get the same check numbers. You reach out.

I've been— here's a good example. I've been, I've been working with attorneys now for 21 years, and the, the most common fraud I have seen over those 21 years are the fraudsters who somehow get a hold of the attorney and they know what cases they're working on, which is generally public record sometimes. Yeah. And They contact them and pretend like they're part of— going to be part of the settlement. And they're like, you need to send me this much money, blah, blah, blah. I'm giving it all kind of in a little nutshell. And I've seen attorneys be burned on this 2 or 3 times. Now, that could be prevented with positive pay because if that fraudster is not on the list, they're not going to get any money.

Exactly. Yeah.

I like this.

Yeah. Well, and the whole premise behind the positive pay Is, you know, to, to reinforce that relationship, especially with ACH payments going out. You want to reinforce the, the relationship of who the person is that's permitting, requesting it, and who's authorized to, to submit that, like wires, ACH, or positive pay, and have control over those checks. We've always said have control over your checks. So when employees are part of the setup of it, Steve, or like our firms are part of the setup, sometimes there's a little extra layer of security things that you have to do that you basically, you'll have to either sit with the banker or be part of a protocol and put in some personal information and/or some of the details so that there's, uh, how do you use their product, how are you permitted to get in and grab this data. One of the banks that one of my clients banks with, after a moment that happened in trust and we moved everything over. Mine is biometric, so I'm the only person that can log in. And it's got this whole thing that I do with a biometric login with a passkey on top of it. So it's really locked down. Like, it's a, it's an expensive service, but it's been proven to provide extra layer of protection for the firm.

That kind of protection should have no Price on it. I mean, price limitations on it. It's, it's worth it. Totally worth it. You know, a firm who is doing lots of settlements, like a personal injury firm, boy, I can see how this really could come into play.

Yeah. Yeah.

And it would, it would— we run into those situations with sometimes with personal injury firms where they get a little exuberant about allocating the money out of trust right away as soon as it settles.

Yeah.

Before all the accounting is done. And so with having positive pay in there, that would slow that process down and make it that much more efficient.

Well, and the other option too, because you bring up such a good point with PI firms or any sort of litigation, when you're doing a settlement payout like that, there is this need to want to print these checks and mail them out. And depending on the check size, sometimes they require 2 signatures of a law firm to sign it. Sometimes it's how you make out the information. And there I've noticed It's better if at the time of signing the engagement and moving forward with the case that you're collecting the ability to pay them with ACH. Sure, it costs the firm a little bit of money to pay it out via ACH, but think about the printing, the postage, the mailing, the tracking the check down, and the positive pay. You would take all of that out if you could find a way to properly send that information out. with memo details and a whole suite of information that people like us who are reconciling and making sure this data is correct actually is going out the door correctly.

Absolutely.

That has cut down a lot of check issues. And the checks that are written at the time of— are possibly for the investigators or at the time of settlement, some of those doctors that need to be paid out, witnesses and so forth. At that time. And those are the checks, and those checks tend to get the positive pay on those because a lot of those businesses prefer to have a check at that point. But it plays such a key role in adding a layer of protection. Kind of sometimes I get that it might be feeling like a little bit of a cost-prohibitive thing, but why not put the extra measure in?

All it takes is one major ding of a few thousand bucks and it's paid for itself how many times over? I can't imagine it's that expensive.

Well, you know, the bank doesn't want to deal with it either. To think, too, of, of the risk that you do for your trust account, because what if it's a trust account that doesn't— it's not one that's, you know, has a lot of funds in it. If you go negative, you have to— now you have a whole suite of extra layer to that in your main checking account. What if you don't keep a lot of funds in your main checking account? You have a secondary account where you sweep it over intentionally for protection purposes. And that overdraws, then you've got a problem with that. Like, you incur more fees and all the hassle and time.

Yeah.

And it just seems like a— I don't know, like a natural thing to— like, for example, for us, like, for our— just our firm, we don't use our debit card. And we have had people use our debit card. Our debit cards have never been used. And we have both Had to call the bank because both of our cards that are sitting, you know, in a safe locked place have been utilized. We're like, how? That's not even—

how?

It's, it's shocking to me. Like, and, you know, it's because at the beginning we're new to the bank. The bank sent us the debit cards. We failed to activate. They sent us a different one. We finally activated, and then some online thing which never have been utilized. So it's too easy lately.

And it's not going away, folks. It's getting bigger all the time.

Thankfully, we've put a lot of things in place. We've locked stuff down. You've seen it on your personal side. Now there's a whole extra thing about Zelle. We see a lot of attorneys using Zelle. Well, there— now there's this whole extra layer for Zelle that you have to do and all of these additional sign-offs that you're doing inside your platforms for it.

Well, look at how it's changed just in the last few years on the accounting side when we have clients who need read-only access into their bank accounts to pull statements and look at transactions. I know, and you probably have seen the same thing, the security has gotten really tight on that.

Yes.

And there's a lot of hoops that we have to jump through. They want our Social Security numbers now and all those sorts of things, which as recently as I want to say 2 or 3 years ago, they weren't asking for that.

No, they weren't. But the thing that I appreciate too is if Clients follow our requests, which typically our requests are no bill pay. I mean, unless you have an actual bill pay approval system, I don't want the bill pay at all.

Yeah.

I don't, I don't want the check writing abilities. I don't want the transfer abilities. And if I, if there is check writing abilities, they're printed and given. They're not like I don't have a sign— there's no stamp signature. A lot of people do stamp signatures, which causes another problem.

You know, when you— I wonder about backing up to bill pay. You have a good point there. Um, I wonder how that works if, if some fraudster was able to actually hack the bank account and get into bill pay. So my question is, I would assume that positive pay also covers bill pay somehow.

Well, in bill pay, what I see, if you have the approval process, which is a very limited—

Right, right. There you go. I forgot about that.

The ability to basically queue up or request and say, hey, these are— these have been agreed upon.

And then it goes to the next— to the—

Goes to the next person. But that person has to go through a whole bunch of extra pieces and additional security layers to be able to approve that. And each bank has their own setup. And then those that Do any sort of check printing also has that additional layer. But I, I feel like no matter what, the risk of exposure, um, and the issue of having the moment happen to you and having to have the hassle of cleaning it up, or just pay this, whatever this fee is, and set yourself up correctly.

Well, and to you new attorneys that are listening or watching the podcast, I really want to advise you to be careful going cheap on your banking packages when you first start up your firm, because what we're talking about today, positive pay, might be part of a more enhanced package that you would get at the bank. But to your point, and to what we've been talking about, it's worth the cost.

Mm-hmm.

All you need is one hit, and it's going to cost you so much more. And You know, you're working in billable time world out there and you don't want to stop. Not only are you spending time that you could be billing your clients, but you are losing money when you don't have these products in place, you know, and giving you the best opportunity to proactively monitor and control your payments that minimize your risk of financial fraud. It's that simple. So where I want to finish with that comment is, and I always adamantly tell clients this, talk to your personal banker. Don't talk to the customer service line.

Yeah.

Become friends with your personal banker. And if you have that great relationship with them, they're also going to tell you when they're moving out of their job and they'll introduce you to the next one. And you have that comfort of knowing that somebody's watching over you. And that they are available when you have a question about a major financial transaction or something is going on with your accounts or, or whatever.

Um, I know it's hard these days, Steve, because some people, their personal banker isn't even located in the same state or city.

Yeah, yeah, it depends how big the bank is.

Right, you know, like, but I do feel like what you're saying is so key to To being more involved in what the bank can do.

That's the word. Yeah.

And ask the questions and see what additional— it— yeah, it's silly. People don't like paying for banks, but— and yes, banks make money off of our money and that blah, blah, blah. But I feel like if you have the opportunity to take the precaution, like you're saying, just take the precaution.

I'm a treasurer for a nonprofit. Club that I belong to. And about a year ago, we had a major— and I'm talking major, this was before I took over the treasury— we had a major fraud attack on the PayPal account that the club was holding.

Yeah.

And as soon as I became treasurer, we dropped that account. However, through— we use QuickBooks Payments for the club. They have PayPal, so there's that extra layer of protection. Our members can still pay by PayPal. Via the QuickBooks portal that we're using. And we have that. And if there's fraud, it's on them, not on us.

Yeah, it can happen to anyone. The other thing too, I, I should have mentioned this, you know, we see this happen. Positive pay, um, also if the check number and the amounts, if it's entered wrong, it kicks it out. So you need to make sure, like, whoever's doing the work, everything lines up, or you have a voided check. You— some want to know what those voids are so the check sequence doesn't skip. But to your point, this extra layer and all this fraud that is occurring, it just— it's— you can't— I cannot believe what is happening. I mean, the scams that go on at this level and this rate of speed has increased.

This rate of speed, and there's so many of them that pop up all the time that it can become very daunting to know What's real and what isn't.

Yeah. For us, what we've seen is you come with— a lot of firms come with it to us. So they have this whole setup and we just, we understand it. So we kind of delve into it. Now it's something we would have to do daily. So it's part of our daily work. We always have a backup system to it. You know, if it's one person that handles the account, somebody else is trained on it. So if that person goes on vacation, it's another trusted person in our team that does the same work. It's very rare that we have a firm that has somebody in-house doing it along with us. That's a rare thing. So that's one layer of setup that we've noticed that's slightly different, but it is a daily thing that has to be done. So if we work on your file, say on Wednesdays, we will be in your file Monday too, because we want to know what checks have been written. So you have to be really good about printing your checks if you're going to print them. Through the softwares.

So you're actually going online to— or you're creating this form that's going to the bank for your clients?

Yep.

Yep.

Gotcha.

And depending on the platform, and they, they're varying in like small banks that have very specific portal things that you go through. There are some that are just specifically on the actual bank thing. Now, if we're doing any sort of payments out on behalf of a client, like an ACH out kind of thing, that's also under an approval process. It's never— and they're very timely. So if somebody, if an owner is not available, you have to wait for them to come back in and approve it. So there's a lot of workflow processes that go into this as well. So not only is it the front end of setting it up, to your point, Steve, and making sure your bank and you got your relationship, you also have a whole suite of things on the other side, whether it be an outside firm and/or somebody in-house doing the work. But you want to make sure that you have the protocols and the workflow set up correctly. So that— because we've seen check fraud happen internally, sadly. So a lot of times you and I are outside firms, it's our reputation. That wouldn't be something we would be doing. So we'd have all the strict protocols. We'd want that same thing in-house because—

Let me ask you this then.

becomes the problem.

So in-house, let's use a scenario where they're in-house and they goof up a check and so they void it. I am a proponent of when you, when you have a check that you've goofed up, that you post it as a void then in the books.

I know.

Does that go into positive pay then as a void when you're doing that for the clients so that the bank can see that if check number 1157 comes through and you've tagged it as a void check They don't pay it.

It depends on the bank. I think it depends on what the bank protocol— not every bank has the same, uh, details of positive pay. But the problem I do see, and the reason I kind of smiled, in my experience— and I— you tell me if you've experienced this— depending on the software, not every software allows you to void a check. It's delete, and delete makes me nervous.

You just void a zero check and you create a GL account called voided checks is what I do.

That's, yeah, but that's for the accounting people out there in the space.

Right, right.

That's a workflow specific to you. Um, it, it's not in every ledger system that you have these abilities, which is a bit frightening, honestly, to, uh, to say, to admit to, but it's true. So.

Things that we lose sleep on at night, right?

I know. And, and to think, like, I appreciate our teams that work on it and that do it and are diligent. And there's also— forgot to add— sometimes positive pay, depending on the bank, has a window, and it could only be 15 minutes at a certain hour of a day. So, um, this has come up. This is a very rare thing, but it's always— you want to do it first thing in the morning. You want your positive pay to go in before the next day. And it's typically done first thing in the morning and before the bank postings happen. But there is a bank— of all of the banks that we work with, there is one that has a very specific window, and you have about 15 minutes to post your stuff.

Wow.

Going back to the workflow thing.

Yeah, no kidding.

It's intense. So yeah, I, and for us as accounting firms that are, you know, outside services, we, we have to price for that. That's an additional service, but then it goes back to the protection of your bank account. So worth the cost, worth the cost. Totally. Yeah.

Awesome. Well, that was a great conversation today. Eye-opener.

Positive pay-opener.

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You know, it's funny, Steve. I think about it. Accounting firms really don't write checks.

Not as much as they used to.

We— I mean, we don't. We don't ever. I mean, it's so rare.

Yeah.

And I don't— I don't even think I have any more. Like, it's just— it's not a thing that you do. So it's kind of funny that I was just thinking about that as I was listening to the closing show notes.

So awesome.

Well, thank you everyone. Now we can go off and do our week. We're educated on positive thinking.

There we go. Well, y'all have a great week.

Thank you. Bye-bye.

Bye-bye.