Remittance Definition

Remittance refers to the money that is transferred back to an individual or business via check, cash, or online payment. Here, the word ‘remit’ means to send back (money) from one party to another.

Suppose the customer transfers money to purchase the order from your shop; that’s remittance. Similarly, if you are working abroad and send money to your family electronically, that’s also remittance.

Now that you know what’s remittance, it’s time to find out what does remittance advice mean.

What Is a Remittance Advice?

A remittance advice is a formal document stating that the customer has already paid the money for the given invoice. A remittance letter is issued by the buyer so that the supplier can compare the money they received with the outstanding invoice. The supplier can check whether the customer has actually paid the money and update the accounts receivable sheet.

A basic remittance advice acts as a payment notification, especially when there is a higher wait time for receiving the payment. It informs the payee that the payer has already dispatched the payment, and they will receive it shortly. That’s how remittance advice plays a key role in tracking paid invoices and helping businesses know what to expect.

Issuing a remittance notice is common when transferring such a large payment amount or initiating international transfers. It further helps businesses in organizing cash flows as they will know how much money they will have in hand.

Remittance Advice Example

If you are running a business, you might have seen an extra piece of paper attached to the check when your client pays the money. So, an extra piece of paper that you separate from the check refers to the remittance advice.

In the same way, when it comes to receiving the check refunds, you may see a separate letter confirming how much was paid, which is also called remittance advice.

Let us help you understand remittance advice meaning by looking at what is a check remittance example below.

What to Include in Payment Remittance Advice?

Adding the remittance details will help the payee learn their payment expectations without any confusion. Here is what type of information is found on a remittance advice.

1. The details of the payer

Start creating remittance advice by filling in your personal details, such as full name, address, email, and contact number. This will aid the payee in learning from whom they can expect a payment and accordingly update their accounts receivable sheet.

2. Supplier’s information

Include the supplier or vendor details to whom you issue a remittance advice. Add the company’s name, location, company’s official email address, state, and zip code.

3. Invoice date and number

Mention the correct invoice date as well as invoice number on a remittance advice slip so that the supplier can quickly match the invoice and confirm the details to mark an invoice as paid.

4. Payment method

Highlight the payment method, such as check or cash, that you used to pay the invoice in the remittance advice. So, the supplier can check the bank transactions if needed and acknowledge the payment.

5. Total amount

Thereafter, describe the total amount you paid to the supplier in USD or any other specific currency. Mentioning the correct amount will help the payee confirm the payment and update the invoice status.

What are Remittance Advice Types?

Below are some different types of remittance advice that can be used to inform the payee about the dispatched payments.

1. Basic remittance advice

It is a simple note that comprises important payment details like when and how the payment was made. Plus, it informs the supplier how soon they will receive the payment in a simple form.

2. Removable invoice advice

It is a remittance advice type where the invoice itself consists of the tear-off slip at the bottom. The payer can use this tear-off slip to fill in remittance details, which the payee can later tear off.

3. Scannable remittance advice

Scannable remittance advice has an in-built barcode, which can be scanned to retrieve the payment remittance letter via a fully automated process. It has no physical form.

4. Electronic remittance advice (ERA)

It is a remittance advice proof submitted digitally via email or automated invoicing software. ERA aims to reduce wait times and also minimize the use of paper documents.

5. EDI-based remittance advice (EDI 820)

This type of remittance advice relies on Electronic Data Interchange (EDI) systems to notify suppliers about when the payment process was initiated. EDI-based remittance advice is utilized across all major industries.

6. Web-based remittance advice

Unlike the traditional lengthy paper remittance advice, web-based remittance advice is generated and stored in the web portal. It is usually shared via Email to suppliers or vendors.

Do Businesses Send Remittance Advice?

No, businesses are not bound by any obligations, and therefore, they don’t need to send remittance advice. Basically, this remittance notice is a polite gesture to inform the supplier that “Hey, we paid you this much.”

Upon receiving a remittance slip, businesses are not required to take any action, but only to focus on interpreting remittance advice. The slip is for your record-keeping purposes only.

Unlike the SEPA Direct Debit process, businesses are not required to inform buyers before making a payment because sending remittance advice is optional.

Importance of Remittance Advice

In case you are still wondering about the role of remittance advice, even though it isn’t obligatory, here are a few reasons why payers attach a remittance notice with an invoice.

1. Record-keeping

A remittance advice notifies how long it will take to get the money credited in their bank account. Businesses can learn about the settlement of outstanding invoices and update their internal records.

2. Quicker reconciliation

With remittance advice attached to an invoice, your accounting team finds it easier to match payments with the correct invoices. They can see remittance data clearly instead of digging through invoicing records and ultimately reconciling payments quickly.

3. Transparency

Remittance advice leads to better transparency between both the payer and the payee. It informs them how much money was exactly paid for which invoice.

4. Less chances of disputes

A remittance advice breaks down everything in a way that both parties know which bill was paid, minimizing the chances of potential disputes between the buyer and the seller.

Final Thoughts on Remittance Advice

As discussed, the remittance definition and what is a remittance advice, we understand that payment remittance advice is a tiny slip, but it plays a central role in managing invoicing records. It conveys to the receiver exactly what the payment is for in such a way that nothing gets mixed up.

Whether it’s a business or a client, issuing remittance advice slips demonstrates professionalism and clarifies the payment status. This small yet effective step can reduce your accounting team’s working hours and cultivate business growth.

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