Enabling Straight-Through Processing using AI and real-time payments APIs

What is Straight-Through Processing?

Straight-Through Processing (STP) is an instant payment processing method that allows payments to be made in a single pass through the banking system. A straight-through payment does not require the banks on either side of the transaction to exchange any information, other than the amount, beneficiary, and account type. 

For example, when a business receives a check for $200 and deposits it into their bank account, most banks will process this as two transactions: first by deducting $200 from their account as they process the check (the "deposit"), and then crediting them with $200 after receiving the funds from the originating bank (the "clearing"). The net effect of these two transactions is a final balance of $200, but it takes time to complete both transactions.

With STP, the merchant receives a single payment and sends a single invoice, eliminating the need for invoicing and payment reconciliation. This improves efficiency and reduces operational costs, allowing companies to focus on what they do best: serving customers with great products and services.

STP is enabled by adopting automation systems in your business, so you can quickly receive payments, electronically transmit invoices, update accounting records and run reports.

Advantages of STP to Businesses

The most important advantage of STP for businesses is that it saves time. Instead of waiting for days or weeks for payment, your money will be credited to your account as soon as the transaction takes place thanks to this process. This allows you to stay on top of all your expenses, have better financial control, and makes cash flow much easier to manage.

Another advantage of STP is that there are no charges for processing errors when using this method, unlike other methods such as cheque processing or Internet-based transactions. This saves money spent on processing fees which can be put to better use elsewhere in the business.

Most of the businesses that are currently using this method of payment have pointed the following as some of the benefits of using STP:

Speed: Processing payments with STP is faster than any other method as it does not involve manual intervention or reconciliation. It increases the speed of payments and saves time for both parties involved.

Accuracy: With STP, payments are processed automatically so resulting in fewer errors and mistakes. This leads to accurate information and record keeping.

Cost Reduction: Costs associated with processing manual transactions are reduced significantly with STP as there is no need for the paperwork involved such as check printing and mailing costs, etc. Moreover, there is no need for human intervention in the form of manpower which means that there is no need for salaries or benefits either. Thus, companies benefit from reduced processing costs by using STP.

How Conventional B2B Payments Are Processed 

The payment process for a B2B transaction can be broken down into four main steps:

1. The buyer initiates the purchase by submitting an order.

2. The seller receives the order and either accepts or declines it. If accepted, the seller will forward the details of the transaction to its bank for processing.

3. The seller’s bank processes the information received from the seller and then passes this data along to the buyer’s bank for verification.

4. Once verified, the buyer’s bank sends a confirmation back to the seller’s bank, which then sends an authorization request to the buyer’s account for final approval.

Step 1 is typically initiated by a purchase order (PO). A PO is a written document issued by an organization or individual that authorizes another party to acquire specific goods or services by way of payment, usually within a specified time period and at a predetermined cost.

How B2B payments are processed using Straight-Through Processing

Today's businesses demand faster, more efficient payment options. With the business-to-business (B2B) payments industry in the midst of a digital transformation, the need is stronger than ever.

Printed checks are no longer the standard. The paper check is quickly falling out of favor in a digital age, where time and cost are driving business leaders to accept electronic payments.

As a result, B2B financial transactions are increasingly being processed electronically through "straight-through processing" technology. STP processes transactions directly as they occur, rather than entering them into a batch file for later processing. For instance: if an employee receives their pay via direct deposit, STP immediately processes that transaction and eliminates the need for an intermediary step.

What does this mean for businesses? Processing payments faster allows businesses to spend less time on administrative tasks and more on what really matters — growing their business.

The Frictionless Framework for Modernized B2B Payments

Photon Commerce has been working with organizations of all sizes throughout the payments' ecosystem — from corporations and financial institutions to technology providers and government agencies to address challenges facing B2B payments. The company helps organizations maintain control of processes while leveraging technology solutions that simplify them. The framework aims to help companies reduce operational costs, enhance customer service levels and ultimately drive value in their organizations by facilitating better transactions between buyers and sellers.

Final Thoughts

Although Straight-Through Processing is hard to define, it’s easy to see how it has radically changed the way B2B payments are managed. The introduction of APIs, RPA, and automation has allowed for seamless communication between businesses to exchange information related to payments in real-time. This eliminates a whole host of interdepartmental issues related to tracking, debt management, payment schedule, etc.