Corporate Trade Payment (CTP)

What Was Corporate Trade Payment (CTP)?

The corporate trade payment (CTP) was a form of transferring funds electronically that is no longer in use today. The CTP system was utilized by corporate and governmental entities to pay creditors using the automated clearing house (ACH) system. The CTP payment network became obsolete due to its lack of flexibility and since been replaced by more modern systems.

Key Takeaways

  • Corporate trade payment (CTP) was an early form of commercial payments network that was built on top of the automated clearing house (ACH) system.
  • Launched in 1983, it failed to keep up with technological progress and electronic transaction demand.
  • CTP was replaced by the corporate trade exchange (CTX) system for electronic payments, which is still in use today.

Understanding Corporate Trade Payment

The corporate trade payment (CTP) system was introduced in 1983 to address the limitations of the automated clearing house (ACH) system, which had been in place since 1974. The ACH system used a 94-character format to encode payment data in electronic form. Data encoded in this format typically included the institutions and account numbers of both payor and payee, as well as the relevant dates, payment amounts and processing codes.

The ACH system left 30 to 34 of the 94 available characters for messages, which was found to be insufficient. Further problems with the ACH system included the lack of standardized rules or procedures for passing any included messages on to the recipient of the transaction. Neither were there any standardized procedures for encoding message data or processing it.

When the CTP system was introduced, it expanded the message attachment capability of an electronic payment to up to 4,999 additional 94-character messages. In theory, this allowed the payor to include with their payment information any necessary payment advice, or information that served to identify the reason for a payment and explain the amount of the payment.

Benefits of the CTP system for both payor and payee included the elimination of postage and handling costs and the reduction of bank fees. However, the costs of the CTP system meant that it was not ideal for sending or receiving simple, single-invoice payments, but was better suited to more complex remittances.

Failure of CTP

The CTP system was phased out with the passage of the Debt Collection Improvement Act of 1996. The corporate trade exchange (CTX) system replaced the CTP system, with features that sought to rectify its predecessor's flaws.

The CTP system failed in part because of the requirements of its format, which made it difficult to package payment advice information into the addenda records. The CTP system also lacked a data content standard that would have made it easier for corporations to automate accounts receivable information.

The CTX system provides for easier tracking of payments, and allows for the addition of more extensive and adequate payment advice records with each payment. The CTX system also corrects the problem of a data content standard that plagued the CTP, using X12 to automate the receipt of payments.

Article Sources
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  1. Federal Reserve Bank of Atlanta, Economic Review. "Corporate Trade Payments: Hard Lessons in Product Design," Pages 10–11. Accessed Mar. 7, 2021.

  2. U.S. Department of the Treasury, Financial Management Service. "Guide to Federal Financial EDI Payments," Pages 1-2. Accessed Mar. 7, 2021.

  3. U.S. Department of the Treasury, Bureau of the Fiscal Service. "TreasuryDirect (TD) Corporate Trade Exchange (CTX) Formatting Standard," Pages 2-3. Accessed Mar. 7, 2021.

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