Like other work processes, STP assists in the reduction of human errors, operational risks, and transaction time. Therefore, allowing business owners to focus on other critical aspects of business development. At the same time, it provides staff more time to focus on other essential tasks. It can also result in a better customer experience.
We talk about straight-through processing and other salient points about the process below.
What is Straight-Through Processing
According to Investopedia, STP or straight-through processing uses electronic transfers to process payments, and it typically does not involve manual input of data. Any organisation using the process must have the fundamental systems and technical networking to assist in efficient STP operations.
Companies use the STP method to speed up processing times of financial transactions. The primary aim of STP is to filter information across various points within an organisation, reducing the time needed in encoding the same data repeatedly and guaranteeing the complete processing of every transaction. As a result, errors in manual data entry are reduced and shared more quickly and securely.
STP (Straight-Through Processing) Vs. Traditional Payments
Now that you already know what STP is all about. The next thing you probably want to understand is the difference between STP and traditional payments.
Straight-through processing has massively helped businesses since first introduced in the 1970s. Since then, it has increasingly helped businesses. It has streamlined accounting processes, especially when it comes to payables and receivables. It assisted in the efficient collection and tracking of payments between customers and business owners, even from one business to another.
STP has also been instrumental in decreasing human errors, especially those that had to do with accounting functions. It has improved efficiencies in the cash flow and working capital of businesses. STP has also assisted in the improvement of business analytics. After adopting STP to its processes, organisations can track spending patterns and client behaviours and system or human errors and delays.
Meanwhile, traditional payment processing meant several departments were involved in sending money, with some initiating the payment and the others handling the receiving end. Payments were initially made over the phone, email or in-between software, taking days to complete.
The sender and the recipient usually confirm the payment through facsimile, email, or phone. These were then encoded manually into an internal payment system. Before payment was released, the encoded details still needed the confirmation of either a supervisor or another person at the management level to guarantee accuracy.
Before the advent of SWIFT codes and Automated Clearing House or ACH, telegraphic messages transmitted payment transactions that came with unique codes, the length of this process depended on the details, and initiation itself took hours or days to complete. It took longer for international payments because of the stringent requirements to complete a fund transfer.
Telegraphic transfers tend to be costly, prone to delays and errors. Because finance teams processed payments manually, it was difficult to predict when suppliers or businesses would receive payments. Therefore, resulting in late charges and penalty fees.
STP aided in optimising the b2b payment process, especially in e-commerce. Moreover, it helped reduce overhead costs, boost productivity, and improve relationships between suppliers and customers.
Benefits of Straight-Through Processing for Small Businesses
Understanding the differences between traditional payment methods and STP will help you decide which work best for your business. If you are still on the fence about using STP, below are several of its benefits for small businesses that may help make up your mind:
- Everything that goes on with straight-through processing is entirely electronic. Payments are received faster because STP automates the process.
- STP assists in the streamlining of the accounting processes of businesses. It also tracks and monitors payment collections between a company and its supplier or its customers.
- Aside from automating several business processes, it allows immediate transmittal of information online and decreases the possibility of errors in payment transactions.
- It minimises operational costs and reduces the time needed for payment processing, thus allowing companies to grow exponentially.
- It comes with a system based on rules. Because of this, companies can track the progress of payment transfers in real-time.
- It includes spend analytics to monitor customers’ spending patterns and behaviours, contributing to better marketing strategy and increased sales.