Remittance Advice
Summary Definition: A notice sent by a payer to the payee that outlines key details of an incoming payment.
What is Remittance Advice?
Remittance advice is a formal document or notification that communicates the details of a payment to its recipient.
Typically used in a business-to-business payment process, remittance advices serve as a reference for which outstanding invoices or obligations the payment is intended to cover, reducing ambiguity and helping recipients maintain accurate records.
Key Takeaways
- Remittance advice is a document that communicates payment details, helping recipients accurately apply funds to outstanding invoices.
- Using the correct format and including specific details (e.g., payment amount, invoice number(s), contact information, etc.) ensures fast and accurate reconciliation.
- There are several types of remittance advices available, ranging from basic summaries to detailed or electronic formats, each offering different levels of information to support accurate payment tracking and smoother reconciliation.
Why is Remittance Advice Important?
A well-prepared remittance statement provides clarity on which invoices or purchase orders a payment applies to, accelerating processing steps and reducing the risk of misapplied funds. For accounts receivable teams, this clarity enhances forecasting, audit readiness, and customer relationship management.
Additionally, when used consistently, payment remittance documents help establish trust between payers and recipients by offering transparency and a paper trail of all completed transactions.
Is a Remittance Notice the Same Thing as Proof of Purchase?
No, a remittance notice and proof of purchase serve different financial purposes.
A remittance notice confirms that a payment was sent and provides corresponding information, such as invoice numbers, the remittance date, and payment method, to help recipients reconcile open balances.
Proof of purchase, conversely, serves as evidence that the payment was successfully received and processed (e.g., a deposit receipt or a cleared check).
The key differences lie in timing and document creator: remittance notices are proactively sent by the payer during the payment remittance process, whereas proofs of purchase can be generated by recipients, financial institutions, payment processors, and others to confirm completed transactions.
What Would Be Found on Remittance Advice?
A properly structured remittance statement includes critical data points that help recipients identify and apply payments accurately. These components, therefore, should work together to eliminate ambiguity and support the accurate and timely matching of payments to outstanding purchases.
Remittance Information to Include
While specific formats may vary between organizations, payers should generally include the following key details in every statement of remittance:
- Payer’s name and organization: Clearly identify who is issuing the payment.
- Remittance contact information: Include a direct name, email address, and phone number for follow-up.
- Payment amount: State the exact dollar value of the payment.
- Invoice or reference numbers: List the invoice(s), purchase order(s), or account number(s) being paid.
- Remittance date: Indicate when the payment was sent.
- Payment method: Specify whether the payment was made via an automated clearing house (ACH) transaction, wire transfer, check, or another channel.
- Adjustments or credits applied: Note any early payment discounts, partial payments, or credit memos.
What are the Different Types of Remittance Advices?
A remittance receipt can come in a few formats, each suited to different workflows, industries, or payment systems.
| Type | Description | Best Used For |
| Basic Remittance Advice | A simple summary showing the payment amount and invoice number(s). | Single, straightforward payments |
| Detailed Remittance Advice | Includes line-item breakdowns, partial payments, credits, and remark codes. | Multiple or complex invoices |
| Electronic Remittance Advice (ERA) | A digital format transmitted via Electronic Data Interchange (EDI) or automated systems. | High-volume payments, healthcare, or ACH-based payment workflows |
Remittance Advice Example
Doe Industries pays its supplier (Smith Supplies Inc.) $8,950 for a series of orders it made in the prior two months. Along with the payment, they send a remittance letter stating the amount paid, the date of payment, and the invoice numbers.
Remittance advice sample generated by OpenAI’s
ChatGPT (Image Generator GPT)
How Does a Remittance Notice Work?
The payment remittance advice process can also vary between organizations, though it often includes the following steps:
- Payment initiated: The payer authorizes a transaction, such as a check, ACH, or wire transfer, to settle one or more outstanding invoices.
- Remittance statement generated: The payer’s system creates a document outlining key remittance details, including invoice numbers, payment amount, remittance date, and any adjustments or discounts.
- Advice delivered: The remittance letter is sent to the payee via email, physical mail, or through an automated system (like an electronic remittance advice).
- Payment received: The funds arrive in the recipient’s account, often before or simultaneously with the remittance notice.
- Payment matching: The recipient’s accounts receivable team uses the remittance information to identify the correct invoice and apply the funds accordingly.
- Issues resolved (if needed): If discrepancies exist (e.g., partial payments or missing information), the remittance contact details on the notice guide follow-up communication.
How to Process Received Remittance Details
After a payment remittance is received, whether electronically or by mail, finance teams should follow a consistent workflow with at least a few of the following steps:
- Confirm receipt of funds: Verify the payment was deposited or received, matching the amount listed on the remittance letter.
- Review remittance information: Cross-check the invoice numbers, remittance date, and any payment adjustments or partial payments.
- Apply payment to open invoices: Use accounting or enterprise resource planning (ERP) software to apply the payment to the correct open balances, referencing the remittance number for tracking.
- Flag and investigate discrepancies: If the remittance information includes unfamiliar charges, short payments, or unexpected credits, reach out to the remittance contact listed on the advice.
- Document and archive: Store a physical or digital copy of the payment remittance for audit trails, internal reporting, or future reference.
- Reconcile and report: Finalize the cash application by reconciling it with your general ledger and updating payment reports.
