What is Straight Through Processing (STP)?

Jun 9, 2023 by Zazil Martinez

Accelerating the pace of financial transactions and revolutionizing accounts receivable processes, straight-through processing (STP) is the driving force behind transforming laborious manual tasks into efficient, automated workflows.

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 streamlining data sharing across multiple points in a fully-automated manner. In accounts receivable, an STP solution reduces errors and repetitive tasks required to collect and reconcile payments.

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%.

In other words, your AR team can spend time doing high-value tasks instead of basic data entry through automation. All while getting more done faster.

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.

When businesses adopt STP solutions, errors reduce, the processing is faster, and customer service is better. 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 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. But in-house STP initiatives can be costly to develop 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

Since the introduction of STP systems, businesses with high-volume transactions have found new ways to improve their business and accounting processes to save time by tracking money collection and improving cash flow efficiency.

Paper-based payments and other manual methods must complete multiple steps before confirmation. These include sending out a confirmation via telephone, preparing the transfer across departments, and waiting days before receiving and processing the money through the receiver's bank.

But all has changed thanks to STP initiatives.

High-quality STP solutions integrate directly with ERPs and track payment transfers automatically. These solutions provide payment portals for electronic transfers, removing paper checks from the equation.

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.

To break it down further, 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

The most efficient way to achieve STP would be to automatically process clients' payments (auto-pay) when invoices are due. This could be done by storing clients' funds on file and vaulting their payment information on a PCI-compliant platform to process these transactions based on agreed payment terms.

Unfortunately, many clients are still reluctant to hold their banking and credit card information. While this changes, it's still a potential roadblock for organizations seeking to switch to efficient digital payment transfers.


2. Stuck on Paper-based Payments

While the popularity of payment by check continues to drop for consumer payments, checks still account for half of all B2B payments. This is because, in many industries, remittance documents are sent 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 and single and numerous remittance documents offers a solution to streamlining the process. This becomes even more important when there are disputes or partial payments, which can be a headache for AR departments. Digitization of the lockbox system provides greater visibility, which in turn reduces settlement risk and helps AR departments better track payments.


3. Limited by the ERP and Systems They Use

Some businesses are stuck with antiquated CRM, ERP, and payment processing systems that can't support STP. The problem is compounded if these platforms are not PCI compliant, as the business would shoulder enormous risks in credit card processing.

Legacy systems likely have limited posting functionality and won't be able to interface with multiple systems to support various payment methods and channels (check, ACH, card, online, and mobile payments).

It isn't uncommon for firms to use an in-house or third-party payment tool for batch processing that can only process one batch and one payment at a time. This lengthy process would take 3-5 days to complete. Meanwhile, modern STP solutions take only a fraction of that time.


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.