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Remittance Advice

What Is a Remittance Advice?

A remittance advice is clarification or direction that a customer provides to a business to help match their payment to the invoice (or invoices) they are paying. It is a courtesy in the business world between customers and their providers or suppliers and helps businesses properly track and record payment and assign them to the correct transaction. This is helpful when it comes to managing cash application and accounts receivable.

What Are the Common Elements of a Remittance Advice?

A remittance advice usually includes some basic details:

  • The name and address of the paying customer

  • Contact information for follow up queries

  • The name and address of the business that is in receipt of payment

  • The manner of remittance or payment

  • The total amount of payment

  • The invoice number and date

  • A description of services, products, or materials provided

Some remittance slips may have even more detail, such as a paper document number, discounts and credits, future payment dates, payment reference numbers, gross and net payment amounts, and other details.

How Is a Remittance Advice Prepared?

Customers can provide remittance advice in different ways. They may provide a custom written note or letter on company letterhead and typically include it with check payment. It may be provided in an email or via EDI 820 messaging, which may be common with digital payment. Lastly, some businesses provide a standardized remittance advice form that accompanies an invoice which the customer can complete and return with payment.

Is a Remittance Advice Standard?

Sending a remittance advice is not a requirement and it is not uniform or standardized. Different customers may provide different information in their remittance advice. They may use different formats and forms. They may not provide any remittance advice at all. However, businesses can achieve some standardization of remittance advice by providing a remittance form with their invoices.

Are There Different Types of Remittance Advice?

A remittance advice tends to come in different forms:

A basic remittance advice is a note or letter provided by a customer with some information about the payment.

What information gets provided and how it is formatted are largely up to the customer unless the business provides a standardized form with the invoice.

Some businesses provide a removable or detachable remittance advice form that is attached to the invoice, which the customer can separate, complete, and return to the business.

With the growth in online payments, some remittance advice is sent in a digital, scannable format that can be stored as an electronic record.

Electronic remittance advice (ERA) is most commonly associated with the medical field. It is produced by various medical insurance coverage providers, including Medicare, Medicaid, and private insurance companies, to detail payment to healthcare providers.

How Does Remittance Advice Help Cash Application?

Cash application is the process of matching incoming payments to outstanding invoices and to the proper account where they can be entered. It is an important accounting process and one that helps manage accounts receivable.

Remittance advices can help with this process by helping inform the AR clerk how to match payments to invoices, but if the information is not clear, then the process becomes a challenge.

Even with remittance advice, cash application can still be difficult. If, for example, multiple invoices or parts of invoices are combined into one payment, this may be difficult to discern if the remittance advice does not clearly spell out the details. When payments are not made in full, this can also cause uncertainty.

Customers sometimes also take discounts or credits, which may not be clear in the remittance advice.


What Are Some Issues With Remittance?

Like other forms of communications between customers and businesses, issues do arise.

For example, businesses with multiple customers can have different kinds of remittance advices because each customer can provide a remittance advice in their own formats, if they provide it all.

Utilizing an accounting software platform that has the capability of scanning and capturing all forms of remittance advice and storing them in a master database can help address this challenge.

Some customers may also submit a remittance advice that is not legible or easy to understand. Because remittance advices are not standardized, different customers may provide different information. Some may leave out important details. Some remittance advice letters may be sloppy, poorly formatted, and just plain hard to read (especially when handwriting is used).

Is a Remittance Advice Considered Proof of Payment?

A remittance advice is clarification of payment, but it is not a proof of payment. Proof of payment can only be provided by a receipt or a bank statement.

Why Is a Remittance Important?

Remittance advices are an important document for communicating between businesses and customers.

Its main function is to help businesses match payments to invoices. Without this clarification, AR teams can spend unnecessary time retrieving invoices, searching ERPs, and communicating with customers, in an effort to match up payments.

Remittance advices help ensure a smoother process and frees up staff to perform other tasks.

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