Clarity is important in an invoicing process to keep accuracy and avoid confusion. That’s where remittance advice is another term that contributes to its value.
It’s not necessary to issue remittance advice for all businesses and every transaction. Still, it enhances easy tracking of payments and reconciling their accounts. It is equally useful for buyers and sellers to streamline their payment process.
This article will unwrap the meaning of payment remittance advice, and its type, & understand it through examples.
What Is Remittance Advice?
Remittance advice is a type of notification in the form of a letter that the buyer sends to the seller regarding payment done or will be done shortly for the invoice. This document can be released for any kind of payment, whether it’s electronic funds transfer or check payments.
We understand the remittance advice meaning as the term “remit” means to send back. In terms of money, remittance refers to the sum of money that is sent back or transferred. Remittance advice is typically used for overseas payments when the party is located in another country.
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What Are the Different Kinds of Remittance Advice?
There are different kinds of remittance advice proof. Professionals can send remittance advice in the form of physical form or digital form.
Types of Remittance Advice
1. Basic Remittance Advice
This remittance simply represents which invoice number a payment is for. Additionally, it also indicates the total payment amount.
2. Removable Invoice Advice
This kind of remittance advice is attached to an invoice when the seller issues it. When the buyer receives it, he fills in the details and shares them back with the seller.
3. Scannable Remittance Advice
This type of remittance advice is designed to be easily scanned for efficient digital record-keeping. Its design helps in easy scanning through a scanning system like barcode technology or OCR.
Types of Remittance Advice based on Category
1. Paper-Based Remittance Advice
As the name suggests, this kind of remittance is based on hand-written or printed. It’s in physical form and offers detailed information about the payment. Its processing is manual instead of a digital concept.
2. Web-Based Remittance Advice
This is a digital remittance and cloud-based accounts receivable payment portals are used to send these remittances. Online platforms are used to reflect payment confirmation.
3. EDI-Based Remittance Advice
This remittance is shared via EDI machines. It is composed of alphanumeric characters. Businesses that handle large amounts of payments often use this remittance.
4. Email Remittance Advice
In email remittance advice, the details are sent through email (within the email body or in the form of an attachment). It’s also a kind of digital form. However, the sender should take care of the recipient’s correct email address.
An Example of Remittance Advice
A remittance advice slip represents the information on those invoices for which payment is under process or already done. Also, any kind of adjustment in the payment either in the form of credit or debit will be mentioned in the remittance advice slip. Additionally, mentioning adjustment reasons is also good practice.
Once the company receives the remittance advice slip, the account receivable department will then update the record while applying payment to the correct invoices.
Now understanding the remittance advice example, let’s suppose a B2B company ABC issued an invoice to another company XYZ for the offered service. The XYZ company as a customer will then issue remittance advice once payment is done for the invoice. The typical form of remittance advice will be as follows:
From:
XYZ
Park Streets,
(City, State, and ZIP code)
To:
ABC
Park Streets 3
(City, State, and ZIP code)
Date: 04-12-2024
Payment reference: #PAY04122024
Details of Payment
| Invoice Number | Invoice Date | Invoice Amount | Amount Paid |
|---|---|---|---|
| INV 1 | 01-11-2024 | $4,000 | $4,000 |
| INV 2 | 02-11-2024 | $5,000 | $5,000 |
Total Amount – $9,000
Payment Method – Credit Card
What Information Should Remittance Advice Covers?
The type of payment method defines the type of information that payment remittance advice will cover. Remittance advice should contain the following information.
The basic information in remittance advice is as follows:
- Name of payers or payees along with their contact details
- An email address
- Invoice number and invoice date
- Payment currencies and methods
- Product and service description
- Total payment amount
- Due date
However, these are basic data that every remittance advice carries. Detailed remittance advice should cover remittance details as follows –
- Paper document number
- Payment reference number
- Gross and net amounts
- Deductions
- Discount taken
- Amount withheld
Importance of Remittance Advice
When it comes to the value of remittance advice, its contribution lies in enhancing transparency, accuracy, and efficiency. It positively impacts on overall financial performance. The major importance of remittance advice lies in the following points –
Streamlines Record-Keeping
It is possible to streamline the maintenance and management of financial records. Well-documented remittance advice helps to simplify internal audits and other types of financial analysis.
Cut Down Errors
There are fewer chances of errors when remittance advice carries all the information. A clear breakdown of payment information along with the purpose of payment plays an important role in representing the details with clarity.
Improved Vendor Relationships
The relationship between supplier and buyer gets strengthened with a high trust level when detailed remittance advice is issued. It leads to smoother transactions and leads to good bonding between buyer and seller.
Streamline the Communication & Courtesy
Remittance advice acts as a clear notification of the payment that has been made. So it eliminates confusion between the seller and the buyer. Additionally, it also enhances courtesy when the terms like “here are the details” or “please find the details here”.
Ensure Accurate Payment Matching
Remittance advice plays a crucial role in invoice matching. Professionals can perform the process of reconciling payments with outstanding invoices by offering comprehensive payment details like payment amounts, dates, and invoice numbers.
What Is the Most Effective Way of Sending Remittance Advice?
The best way of sending remittance advice is by email or snail mail. When comparing these two methods, email is a better option than snail mail. It gives rise to the fast sending of remittance advice.
Whenever it is about sending remittance advice, make sure you send it to the appropriate email. Additionally, it must contain the appropriate information.
Is it Mandatory for Businesses to Send Remittance Advice?
The business doesn’t need to send remittance advice. It acts as a courtesy and does not come under the mandatory process. Businesses also do not have to perform any action on receiving remittance advice.
One must not be confused with it and consider the SEPA Direct Debit process where the payee needs to inform the payer of every transaction.
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Last Words
Remittance advice is not always a compulsory document to send. However, it enhances clarity for complex transactions. Businesses and clients should maintain transparency and efficiently follow the remittance process. It keeps accounting in a well-organized way.
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Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
