Straight Through Processing | B2B Finance Glossary

What is Straight Through Processing?

Straight-through processing, commonly abbreviated as STP, refers to a digitized, automated system for financial processes that removes the need for paper-based operations and human intervention.

Today, almost all electronic payment processing is considered STP, and this technology greatly streamlines payment and routing information so that data does not need to be manually entered.

What are the 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 – something that effectively improves cash flow efficiency.

Traditionally, each paper-based payment method or manual process requires AR teams 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 can 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 company’s digital ERP and track payment transfers automatically. These solutions typically provide payment portals for electronic transfers, thus removing paper checks from the equation.

• Here are some of the immediate advantages of using STP:
• Faster transaction processing times and shorter payment processing cycles
• Increased control over the timing of each transaction
• The elimination of 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
• Increased 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.

They are Reluctant to Store Payment Information on File

The most efficient way to achieve STP would be to have clients’ payments automatically processed via autopay when invoices are due. This can be done by using fund-on-file tokenization to store customer data and vaulting this payment information on a PCI-compliant platform to process these transactions based on agreed-upon payment terms.

Unfortunately, many customers are still reluctant to have a business hold their banking and credit card information. While online payments continue to become more popular and customer sentiment is changing, customer concerns about online payments present a potential roadblock for organizations seeking to switch to efficient digital payment transfers.

They are Stuck on Paper Check Payments

While the popularity of check payments continues to drop for consumer payments, checks still account for about 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 that can streamline the entire process. This becomes even more important when there are disputes or partial payments, which can cause headaches for AR departments. Digitization of the lockbox system provides greater visibility, which in turn reduces settlement risk and helps AR departments better track payments.

They are 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 because this will cause the business to inevitably shoulder enormous risks regarding credit card processing.

Legacy systems likely have limited posting functionality and won’t be able to interface with multiple systems to support multiple payment methods and channels (e.g., check, ACH, card, online, and 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.

Tips for Choosing the Best STP Solution for Your Company

When it comes to choosing the best STP option for your company, there are a number of factors to consider. Here are a few questions to get you started:

• Does the STP solution integrate with the software your company uses today?
• Does the STP solution allow your company to accept many different payment options – namely, the kinds of payment options your customers want to use?
• Does the STP solution reduce hidden costs like transaction fees?
• Does the STP solution make it easier for your AR team to automate essential processes?
• Does the STP solution ensure that you’ll be able to get paid faster and reduce DSO time?