When it comes to business transactions, it's always helpful to have more clarity around the payment process. When an invoice has been paid, providing clear context about what the payment is for and outlining exactly how much is being paid can be beneficial for both the payer and the payee. This is where remittance advice comes in handy.
Issuing remittance advice slips for vendors can help them with their accounts receivable process, and internally, it can help your accountants with their record-keeping. So what is remittance advice? Learn more about the definition, different types of remittance advice, and how BILL can help simplify the process.
As you probably know, "remit" means to send back, and "advice" means to give information. Remittance advice is a letter used by a customer to inform the supplier with information about the payment made. It contains important information such as the payment amount and what invoice numbers the payment is tendered.
If an invoice is paid by check, it's common to attach a paper remittance advice to the check. The recipient can tear the check off to deposit it and keep the remittance advice for their records. For payments made electronically, you may attach an electronic remittance advice to an email to confirm the payment.
While a remittance advice is not mandatory, they are very helpful to include along with the payment remittance, which means the payment itself. It's important to note here that payment remittance and remittance advice are two different things. While the former refers to the actual check, the latter refers to the supplement information that comes with the check.
There are three notable types of remittance advice: basic remittance advice, removable invoice advice, and scannable remittance advice.
This is a simple letter containing details such as:
This includes the same information as the basic remittance advice, but also has a removable remittance slip that the customer can complete. This usually means the vendor needs this additional information from the customer when they receive payment.
Just like a basic remittance advice, this has invoice and payment details, but it also has a digital twist. These remittance advice notes can be scanned so you can retain the data for electronic records.
If you've ever received a personal payment by check in the mail from a company, you probably had to tear it off the bottom of a sheet of paper. The part of the paper that wasn't the check is the remittance advice. Check out this remittance advice example to see what that might look like.
As another example, people who received their tax refund checks by electronic funds transfer (EFT) may have gotten a letter in their mail or email confirming the payment amount. That letter is a remittance advice slip.
The first thing to ask if you get a remittance advice is whether you were expecting a check. If you have accounts receivable, are owed a tax refund, or are waiting for some other type of payment such as an insurance claim payment, you should not be surprised to get a remittance advice. If you don't immediately recognize the payer or what they owe you, the remittance advice should provide enough information or you can contact the payer to learn more.
If you get remittance advice with a physical check, that’s probably just the company’s standard formatting for checks. The information on a remittance advice slip might be useful later on, so consider transferring the information to your accounting system or scan the slip into your files instead of throwing it away.
A remittance advice is valuable documentation for both payer and payee, as it helps the payee (seller) reconcile their accounts and match payments to invoices. On the other hand, the payer can keep a copy of it to track their payment history. When their accounting department needs to know what check #101 was for, they can look up the remittance advice associated with that check and find that information quickly. Remittance advice provides transparency and organization in tracking financial transactions, saving time and preventing errors in accounting.
Most remittance advice includes standardized information. A remittance advice contains the following:
Keep in mind that the remittance advice may not be attached to the check, so include any relevant information from the check on the remittance advice as well.
If you are in healthcare and sending payments to patients, such as refunds, remember to comply with HIPAA requirements. Don't include information that could be considered protected medical information. Remittance advice should only include the information needed to explain the payment amount, such as the standard information and claim adjustment reason codes.
Sending remittance advice is an accounting best practice and a courtesy to the people you pay. Some companies may request remittance advice, but there are generally no official requirements to send one.
The biggest benefit of remittance advice is to help with record keeping and to streamline the accounts receivable process, because it gives recipients enough details to match your payment to your company.
You can always request that people send you remittance advice to help with your payment processing. You can technically require that your customers send one as part of your terms, but this is difficult to enforce, because fees or penalties could lose you customers.
One of the best ways to make sure you get remittance advice is to include a preprinted payment remittance with your bills, so the customer can just include the remittance advice with their check.
If you use an electronic method of payment, your payment portal can automatically generate remittance advice based on what bill your customer selects to pay. Checks mailed by a customer’s bank's bill pay service may not always include a remittance advice slip.
If you want more details with each check, you could try requesting that customers include their account number and invoice number in the memo.
You can't use the remittance advice as proof of payment. A payment remittance advice is not the same as a receipt, and it does not guarantee that the recipient actually received your payment. You can include a request for a receipt on your remittance advice, but the recipient is not obligated to send one.
However, remittance advice can document that you at least attempted to pay. For example, if the payee gets your remittance advice but not your payment, they may be more willing to work with you instead of just marking your payment as late.
There is no right or wrong way to send remittance advice. When you mail a check, it's common to include the remittance advice to help the receiver identify the purpose of the check. Some businesses prefer to send remittance advice separately as an additional internal control step. If you pay electronically, you might want to email or mail the remittance advice depending on the common practices in your industry.
If you mail a remittance advice slip, it can be helpful to your vendors to make sure that it's scannable. This helps them avoid manual data entry. To be scannable, a remittance advice slip should generally:
These features allow a computer to automatically extract the needed information from the scanned image.
Finally, if you receive a removable invoice advice slip from a vendor, it's courteous to return it with your payment.
There are no hard and fast rules about sending remittance details, but here are some common ways to send them:
Mail: Sending remittance advice through mail is one solution, and an easy choice when you are already sending out physical checks.
Email: This is an easy way to send remittance details. So what is a remittance email? This is any remittance advice sent to your inbox, and it can include the same information you would send in physical mail.
Other digital methods: If you want to send digital remittance details outside of a remittance email, you may have other options. Check out your existing accounting platforms to see if any of them have this ability built in (hint: BILL does!).
BILL's Vendor Direct gives you a secure and easy way to pay vendors. BILL automatically imports your accounts payable from your accounting software to help you manage all of your payments. You can electronically pay vendors who are eligible for Vendor Direct with no transaction fees or extra work to you. Your vendors receive their payments as you schedule them.
On your end, the system automatically updates your accounting software, so there is no need to manually track your payments. Your vendor will receive a remittance advice email confirming the details of the payment you sent along with your contact information if they need to discuss the payment with you. To learn more about how BILL's accounts payable tools can save you time and money, request a demo or sign up for a risk-free trial.
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