What is Straight Through Processing?

Nov 11, 2020 by Daniella Bourguetts

Straight-through processing (STP) helps businesses speed up transaction processing by streamlining data sharing across multiple points in a fully-automated manner. In accounts receivable, STP is used to reduce errors and the amount of repetitive, menial tasks required to collect and reconcile payments.

B2B businesses have the most to benefit from STP, considering they’re still heavily reliant on paper-based processes and paper check payments. By adopting STP, these companies can reduce payment cycle times by up to 60% and lower collection costs by up to 50%.

In this blog, we explore the basics of STP and how businesses are using it to speed up transactions, along with a few tips on how to get started.

What is straight through processing?

Straight-through processing is a system that processes transactions electronically. It replaces physical and paper-based activities with digital ones that can be automated.

In payments, STP is mainly used to speed up remittance and settlement. The goal is streamline payments, so that once a transaction is initiated, all activities associated with the payment processing are automated from start to finish, without any manual intervention.

When businesses adopt STP solutions, errors are reduced, processing times are faster, and customer services is exponential better. According to the Association for Financial Professionals, 47% of organizations currently use STP to manage payments and 44% use it to manage receivables.

What businesses typically use it?

Midmarket and large enterprise businesses with sophisticated payment processes, or virtually any business looking to replace paper-based accounts receivable with digital, remote-friendly systems that are cheaper and easier to manage.

In some cases, businesses themselves may also want to develop their own solutions (marketplaces, CRMs, eCommerce platforms, software platforms), such as payment portals, prepaid cards, or onboarding APIs.

Benefits of straight-through processing

Ever since STP systems were introduced, businesses with high-volume transactions have found new ways to streamline their accounting processes to save time by tracking collection of money and reduced human errors, overall improving cash flow efficiency.

Each payment received by paper or any other traditional method needed to sent out, confirmed via telephone, prepared for wire transfer across departments and wait days before the money could be received and processed through the receiver's bank. But now, it's different.

Here are some of the immediate advantages of using STP:

  • Faster transaction processing times and shorter payment cycles
  • More control over timing of each transaction
  • Eliminate manual data entry and processing errors
  • Better data availability, reliability, and accuracy
  • Reduced 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?

There are several reasons companies struggle to incorporate STP whether in a single portion of their receivables operations, or across their entire company.

1. Reluctant to store payment information on file. For one, the most efficient way to achieve STP would be to have clients’ payments automatically processed (‘auto-pay’) when invoices come due. This could be done by storing clients’ funds on file, vaulting their payment information on a PCI-compliant platform that could process these transactions based on agreed payment terms.

Unfortunately, many clients are still reluctant to have a business hold their banking and credit card information. While this is changing, it can still present a potential roadblock.

2. Stuck on paper check payments. While payment by check continues to fall for consumer payments, checks account for half of all B2B payments. In many industries, the reason being that remittance documents are sent out to the client and asked to be returned with the payment for proper processing and posting. By doing this, businesses inherently encourage clients to pay by check.

A smart lockbox that can scan single and multiple checks as well as single and multiple remittance docs with the checks, is a first step in streamlining the process. This becomes even more important when there are disputes or partial payments, which can be a headache for AR departments.

3. Limited by the ERP and systems they use. Some businesses are stuck with antiquated CRM, ERP and payment processing systems that don’t have the capability to support STP. If they do, they may be limited. And if they’re not PCI compliant, then the business could have enormous risks in credit card processing.

These systems likely have limited posting functionality as well and won’t be able to interface to multiple systems for the support of multiple payment methods and channels (check, ACH, card, online, mobile, etc.). We recently spoke to a customer who used a customer-build payment tool for batch processing that could only process one batch and one payment at a time, and the process would take 3-5 days to complete.

Getting started with straight-through processing

Choosing a straight-through processing solution that works with other software is important. With Paystand, your company can process payments securely and quickly, from anywhere with 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, as well as ACH, free 0% 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 0% fee options.

It’s time to adopt STP processes so you can start focusing on growing your business and start automating your accounts receivable process and get paid faster. Get in touch with one of our payment specialists for a risk-free demo today.