Straight Through Processing: Boosting AR Automation Efficiency

Table of Contents

1. What is Straight-Through Processing?
2. What is the Straight-Through Processing Rate?
3. What Businesses Typically Use STP?
4. Benefits of Straight-Through Processing?
5. Why Doesn’t Every Business Use STP?
6. Getting Started With Straight-Through Processing

Key Takeaways

• Straight-through Processing (STP) automates financial transactions, replacing manual tasks with electronic processes to reduce time from hours to minutes.
• STP enhances transaction speed and accuracy by fully automating data sharing and eliminating manual intervention.
• In banking, STP solutions reduce errors, improve processing speed, and enhance customer service, with 47% of organizations using STP for payments.
• The STP rate measures operational efficiency by calculating the percentage of transactions processed automatically without manual input.
• Challenges in adopting STP include reluctance to store payment data, reliance on paper-based payments, and limitations of outdated systems.
• Implementing STP involves selecting solutions compatible with existing software and leveraging platforms like Paystand for secure, efficient processing.

How does AR automation take laborious manual tasks and cut time from hours to minutes? The answer is straight-through processing (STP).

STP speeds up financial transaction processing by fully automating data sharing across multiple points. In accounts receivable, an STP solution reduces errors and repetitive tasks required to collect and reconcile payments.

But how does an STP solution work? In this blog, we explore the basics of STP, how businesses use it to speed up transactions, and a few tips on getting started.

What is Straight-Through Processing?

Straight-through Processing is a system that processes financial transactions electronically. It replaces physical and paper-based activities with automation.

An STP system speeds up remittance and settlement when taking payments. The goal is to streamline payments so that when a transaction starts, all activities associated with the payment processing are automated. This method doesn't require any manual intervention and is quicker.

What Does STP Mean In Banking?

When businesses adopt STP solutions, errors are reduced, processing is faster, and customer service improves. According to the Association for Financial Professionals, 47% of organizations currently use STP to manage payments, and 44% use it to manage receivables. Additionally, nearly half of the respondents consider STP a significant benefit of electronic transfers, ahead of cost savings and customer relations.

What is the Straight-Through Processing Rate?

The straight-through processing rate (STP rate) is a metric used to measure a financial institution's operations efficiency. It represents the percentage of transactions that are processed automatically without the need for manual intervention. A high STP rate indicates that the institution can process transactions quickly and efficiently without costly delays or errors.

How is the STP Rate Calculated?

The STP rate is calculated by dividing the number of transactions processed automatically by the total number of transactions processed. For example, if an institution processed 100,000 transactions in a month and 90,000 were processed automatically, the STP rate would be 90%.

The ideal STP rate will vary depending on the size and complexity of the institution. However, a good STP rate is typically considered 80% or higher.

What Businesses Typically Use STP?

Midmarket and large enterprise businesses with sophisticated payment processes use STP. Any company looking to replace paper-based accounts receivable with digital, remote-friendly systems that are cheaper and easier to manage would also benefit from STP.

Businesses may develop solutions such as payment portals, prepaid cards, or onboarding APIs. However, in-house STP initiatives can be costly to build and maintain. Besides, organizations must worry about more than processing technology: payment compliance also eats into the budget.

Many businesses seek third-party vendors to provide electronic payments. An STP system can reduce compliance obligations and save resources for mission-critical tasks.

Benefits of Straight-Through Processing

STP systems have revolutionized business and accounting processes for high-volume transaction businesses, enabling faster money collection tracking and improved cash flow efficiency.

Before STP, paper-based payments and manual methods required multiple steps, including telephone confirmation, cross-department transfer preparation, and waiting days for bank processing. STP has streamlined these processes, enhancing efficiency.

B2B businesses benefit from adopting an STP process, as they still rely on paper-based processes and payments. Payment processing software with STP can reduce payment cycle times by up to 60% and lower collection costs by up to 50%.

According to the Ardent 2020 State of ePayables study, best-in-class software has an average rate of 67.2% of successful STP. This means that your accounting departments only need to handle exceptions. As a result, the cost of processing invoices drops from over $12 to $2.56.

Here are some of the immediate advantages of using STP:

• Faster transaction processing times and shorter payment processing cycles
• More control over the timing of each transaction
• Drop manual data entry and processing errors
• Better data availability, reliability, and accuracy
• Reduced settlement risk through minimal human touch-points
• Greater visibility of transactions and cash flow
• Greater AR staff efficiency and productivity

Why Doesn't Every Business Use STP?

For several reasons, companies need help incorporating STP in their receivables operations or across their entire company.

1. Reluctance to store payment information on file. Automating invoice payments by storing client funds and payment info on a secure platform could improve efficiency. However, client reluctance to share financial data remains challenging for digital payment adoption.
2. Paper-based payments reliance. Checks still dominate B2B payments due to remittance documents, encouraging check payments. A smart lockbox can streamline the process, especially for disputes or partial payments. Digitizing the lockbox system enhances visibility, reducing settlement risk and aiding AR departments in tracking payments.
3. ERP and system limitations. Outdated CRM, ERP, and payment systems hamper STP. Legacy systems lack posting functionality and cannot interface with various payment methods and channels. Firms often use a batch processing tool that takes days to complete, while modern STP solutions are much faster.

Getting Started with Straight-Through Processing

Choosing a straight-through processing solution that works with existing software is essential. With Paystand, your company can process payments securely and quickly. All you need is an internet connection. Our software also makes it easier for businesses to automate their manual payment and accounts receivable processes.

Your company can process payments from all major credit and debit cards, ACH, free [zero-fee direct debit payments, and virtual cards via one unified payment portal. Plus, you can prevent high payment processing fees from cutting into your ROI by paying wholesale credit/debit card processing fees or encouraging your customers to pay with Paystand's zero-fee options.

It's time to adopt STP processes so you can grow your business, automate your AR process, and get paid faster! Book a demo today and start the change.