Definition and Purpose

Remittance advice is a message sent by a payer to a payee to let them know a payment has been sent and is on its way. This allows the payee to expect the payment and helps with cash flow. It’s also a useful tool for businesses to keep track of outstanding invoices and forecast incoming payments. Either the payer or payee can send the remittance advice, whichever has been agreed between the two. By breaking down the allocation of funds to individual invoices, remittance advice makes it easier to reconcile payments and allocate amounts to outstanding invoices.

Why Remittance Advice

Remittance advice adds an extra layer of transparency and security to the invoicing process for customers and suppliers.

It clears up bill payment confusion and shows where in the payment process something went wrong.

Remittance advice is crucial for keeping records and matching incoming payments to the right invoices. But interpreting remittance advice is hard because there’s no standard format and requires a lot of manual work from accounting teams.

What should Remittance Advice include?

When creating a payment list, payers should include all items being paid. This means including details such as invoice date, invoice number, any discounts, total invoice amount. And remittance information which is the information sent via email. Processing remittance information can be complex because of this.

Basic remittance advice should include:

  • Payee and payer names
  • Contact details
  • Invoice date
  • Invoice number
  • Related purchase order number
  • Payment method and currency
  • Description of services or products
  • Payment amount
  • Date

How is Remittance Advice different from Proof of Payment and Invoice Notification?

Remittance advice is a document sent to a supplier or vendor to let them know a payment is about to be made. It provides important information about the payment and supports the payment process. This can include amount to be paid, invoice number and any other information to ensure smooth and accurate processing of the payment.

Invoice notification is a message to the recipient that an invoice is about to be sent. It includes a full list of all items or services in the upcoming invoice. This advance notice helps the recipient to prepare for the payment and is a confirmation of the upcoming financial obligation.

Proof of payment is an important document that is a notification to the recipient that a payment has been made. It provides concrete evidence of the transaction and helps businesses to track and trace all incoming and outgoing payments. Having a clear proof of payment is key to keeping accurate financial records and transparency in financial transactions.

Payment Method and Remittance Advice

  • Payment method can determine the type of remittance advice, such as email remittance advice, paper-based remittance advice, EDI-based remittance advice or web-based remittance advice.
  • Electronic transfer and online payments require electronic remittance advice, while check payments may include a paper remittance advice slip.

Payment Remittance and Remittance Advice

  • Payment remittance is the actual payment, remittance advice is the notification of the payment.
  • Remittance advice is not proof of payment, but a confirmation that payment was sent.

Send Remittance Advice for Transparency

  • Sending remittance advice adds an extra layer of clarity to complex transactions and keeps accountants more organized.
  • A statement of payments remitted is useful in the short term to ensure invoices are paid month to month and in the long term for quarterly and year-end reporting.

Remittance Advice Proof

When it comes to remittance advice, remember it’s a notification that payment has been sent not proof of payment. Auditors do not consider payment remittance advice as proof of cash receipt. To verify the actual proof of payment, a valid bank statement is required. Get and use official bank statements to confirm the funds have been deposited into the bank account.

Remittance Advice Challenges

Accounts receivable teams struggle to match remittance advice with invoices. The manual effort in interpreting remittance advice and matching payments to invoices is substantial especially with no standard format. Among the challenges are disparate sources and formats, illegible remittance data and complex cash application. Long paper remittance advice is time consuming to process and prone to errors.

How Automation can help with Remittance Advice Processing and Matching

  • AI-based Cash Application Software can automate remittance processing and save time and cost.
  • Automation can match payments to customers and invoices, reconcile payments to the right accounts and process payments on time.

Best Practices in Sending Remittance Advice

When sending remittance advice the best method depends on the recipient’s preference and the available communication channels. One of the most popular and efficient way is through email where the subject line clearly indicates it’s remittance advice. Online portals also provides a secure and centralized platform to share payment details so the information is transmitted safely.

Electronic Remittance Advice

  • Electronic delivery of remittance details via FTP folders, BAI files or similar formats posts payment to A/R system.
  • No manual data entry required, reduces errors.

Remittance Advice Problems

  • Incomplete or incorrect information
  • Delayed or lost remittance advice
  • Mismatched payments
  • Communication challenges
  • Compatibility issues

Solutions for Remittance Advice

  • Automation and AI can help with remittance processing and matching.
  • Electronic delivery can reduce errors and increase efficiency.
  • Clear and accurate remittance advice can prevent problems.