What is Straight Through Processing (STP)?

Nov 11, 2020 by Daniella Bourguetts

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

Straight-through processing (STP) helps businesses speed 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, menial tasks required to collect and reconcile payments.

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

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

But how does an STP solution work?

In this blog, we explore the basics of STP and how businesses use it to speed up transactions, along with 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 is mainly used to speed up remittance and settlement when taking payments. The goal is to streamline payments so that once a transaction is initiated, all activities associated with the payment processing are automated from start to finish. This method doesn’t require any manual intervention and is significantly quicker.When businesses adopt STP solutions, errors are reduced, processing times are faster, and customer service is exponentially 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 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. Virtually, any business looking to replace paper-based accounts receivable with digital, remote-friendly systems that are cheaper and easier to manage would also benefit from STP.

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. However, in-house STP initiatives can be costly to develop and maintain. In addition, organizations need to worry about more than processing technology - payments compliance also eats into the budget.

To reduce their compliance obligations and save resources for mission-critical tasks, many businesses look to third-party vendors to provide electronic payments and an STP system.

Benefits of straight-through processing

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

Traditionally each payment received by paper or any other manual method requires AR to complete multiple steps before confirmation. These steps include sending out a confirmation via telephone, preparing the transfer across departments, and waiting days before the money could be received and processed through the receiver's bank.

But all of that has changed with the help of STP initiatives.

Most high-quality STP solutions will integrate directly with a firm's digital ERP and track payments transfers automatically. These solutions typically provide payment portals for electronic transfers, thus 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 straight-through transactions. This means that your AR and AP 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
  • Eliminate 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?

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

1. Reluctant to store payment information on file. The most efficient way to achieve STP would be to have clients' payments automatically processed (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 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 for organizations seeking to switch to efficient digital payment transfers.

2. Stuck on paper check 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 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 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 don't have the capability to 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 to multiple systems for the support of multiple payment methods and channels (check, ACH, card, online, mobile payments).

It isn't uncommon for firms to use either 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 important. 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, as well as 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.

Get in touch with one of our payment specialists for a risk-free demo today.