What is Remittance Advice and How to Manage It?

Unlike standard retail transactions based on a cash-on-delivery model, B2B purchases are often financed through credit agreements. In these cases, delivery of goods and services occurs well before clients remit payment. Such a tactic provides greater flexibility for the buyer but often creates uncertainty for sellers. When entrepreneurs receive payment for work completed weeks or months ago, they don’t know how to recognize the money. Fortunately, utilizing remittance advice reduces this confusion. This blog post will help you understand what is a payment advice, and how to work with such a document.

What Is Remittance Advice?

A remittance advice is a document that a client sends to a seller to notify them of conducting a payment for a transaction. It includes the invoice date, number, payment method, transaction amount, and payment dates. Firms can use either electronic notifications or paper options.

Such documents are widely used by companies, especially those with high transaction volumes and those paying multiple invoices at once. They are also indispensable for suppliers and vendors to maintain accurate bookkeeping and avoid constant client calls. Professionals such as contractors or agencies utilize remittance slips to track which project milestones have been paid by a client.

There is no single law requiring businesses to send such proof of payment, but some industries have guidelines regarding their use, such as in healthcare. When interacting with a new seller, you should find out their policy regarding invoicing and the use of remittance advice.

Firms should understand the differences between documents. An invoice is a financial request sent by the vendor, while the client sends a remittance advice to prove the operation. A payment confirmation is typically a technical receipt issued by a bank or payment processor to validate a transaction.

Types of Remittance Advice

Such documents come in various forms depending on the complexity of the operation and the technology utilized by the firms involved. Businesses most often choose the following options:

• Basic payment advice. It is a simple notification confirming the start of a transaction. It typically contains the total sum and transfer date, but no detailed information on specific outstanding invoices. They are often utilized for small operations or one-time payments for services.
• Detailed remittance advice. As you understand from the title, such a category offers more comprehensive data. It highlights full payment information, including invoice numbers, original bill dates, any discounts applied, and the final sum for each item.
• Electronic payment advice (ERA). It is a digital standard, often sent via email or generated by an accounting application. In specialized fields, such as healthcare, ERAs are standardized files that enable vendor software to update records automatically without manual data entry. If the document is sent via email, your accounting specialists can monitor the operation or communicate with the point of contact (POC).
• There are various formats of notifications. The traditional solution is a paper version attached to a physical receipt. It remains popular even in the age of rapid digitalization. Modern small- and medium-sized firms, as a rule, prefer PDF attachments. During the payment process, the client’s software automatically sends a remittance advice PDF file to the merchant’s billing department.

Large corporations and government agencies prefer electronic data interchange (EDI). This digital solution sends payment data in a machine-readable format from one computer system to another, eliminating the need for a human to read the remittance email.

How Remittance Advice Works

The remittance slip serves as the link between funds being deposited into an account and the accounting team’s knowledge of which invoice they cover. This document simplifies bookkeeping and ensures that no bill is mistakenly marked as unpaid. Next, we’ll look at how this document is handled in a standard business environment.

The process begins when a buyer performs a remittance payment to a seller for products or services. The purchaser can use various payment solutions, such as checks, bank remittance, or credit cards. Simultaneously with the operation, the buyer creates a payment notification. Such a document contains the invoice number, sum, and transaction date. Remittance advice accounts for any deductions, including prompt payment discounts.

The buyer must provide this document to the seller. When using a paper version, the client attaches the document to the physical receipt. Recently, electronic formats have become more popular, with files sent as email attachments. After the seller receives the notification, the accounts receivable (AR) team utilizes it to match the incoming funds to open invoices in the financial software.

Benefits of Using Remittance Advice

The advantages of such a document extend beyond accuracy and transparency. They offer a range of opportunities that improve firms’ overall activity.

• Facilitates the reconciliation of incoming digital payments. A remittance slip is a clear roadmap that enables quick identification of the specific invoices paid in a single operation.
• Decreases mistakes and delays in matching operations to invoices. Accurately specifying invoice numbers and sums eliminates guesswork and manual checks. Additional control is often necessary when the payment amount doesn’t exactly match the outstanding balance.
• Improves transparency and cooperation between buyer and vendor. Such notifications provide proactive status updates and allow suppliers to know exactly what to expect. Sellers no longer need to email or call counterparties to constantly check payment status.
• Speeds up cash flow management. Fast reconciliation means instant updates of accounts receivable. Managers can obtain real-time information about the firm’s current financial position.
• Enables better record-keeping and audit trails. Remittance advice is an official document that links transactions to specific business activities. It simplifies internal monitoring and external audits.

Compliance with legal requirements is crucial in any sector. Remittance advice helps firms comply with regulations and maintain a systematic record of operations.

Common Use Cases

While a remittance slip is helpful in any business setting, it is especially critical in complex environments where payments aren’t always a simple one-to-one match. We’ve compiled a few popular use cases.

• B2B transactions involving multiple invoices. In this sector, a firm may purchase goods from a supplier several times a month. Instead of sending several separate checks, clients send a single, consolidated payment. The remittance advice shows which of the invoices have been paid.
• Healthcare operations. In the medical billing industry, insurance companies send ERAs to healthcare providers. The document explains what was paid, what was adjusted, and why some parts of the claim may have been rejected.
• Government and large corporate procurement. Corporations and government agencies interact with many suppliers and undergo rigorous auditing. They use these notifications to ensure that every dollar spent is tracked against a specific purchase order or contract.
• International trade and cross-border payment. When money moves across borders, exchange rate fluctuations and bank fees often occur. Such a notification helps the seller understand whether these fees have decreased the sum received or if the buyer intentionally withheld part of the payment.

Modern software supports the generation and sending of remittance slips. You can educate your employees to add such a document to each operation to ensure all data is accurately recorded.

Bottom Line

As we can see, sending a remittance document confirms that the client has completed the transaction. The recipient must match this document with the invoice to complete the crediting procedure. If your firm utilizes accounting software, invoice notification may be sent automatically.

With the proper tools, working with remittance advice becomes straightforward. If you’re struggling with automated payments, we recommend contacting BooksTime. Our specialists will help you find digital solutions that simplify your accounts receivable and payable processes and provide real-time transaction control. The trained staff will help you reduce errors, improve cash flow, and improve relationships with your counterparties.