Everything you need to know about a remittance advice | statement | slip | note | letter
Remittance advice is a paper or electronic notification of a payment sent by payer to a payee, for example:
A payment remittance advice is also occasionally referred to as a payee advice because it is an advice which lets a payee know that a payer has made a payment to the payee’s account with a bank transfer, check, card or another payment method.
Other terms used for a remittance advice include:
That is why external auditors rely on an actual bank statement rather than a payment remittance advice to confirm a receipt of cash.
Let’s take a look at the most common examples of remittance advice use cases:
Businesses send remittance notes for payments to their suppliers, vendors, employees and contractors.
A bank, money transfer company, credit union, security broker or another financial institution that makes a payment on behalf of its client can also send the associated remittance advice to the payee who will receive the funds.
Remittance statements are also issued by insurance claim processors–like private and public insurers–when they make payments to the recipients of insurance claims.
For example, Electronic Remittance Advice (ERA) and Electronic Explanation of Benefits (eEOB) are statements used to notify Medicare healthcare providers and patients in the United States of a payment, rejection, denial or adjustment in regards to their claims.
Remittance advice is issued either in hard-copy paper or soft-copy electronic format:
For example, employees and contractors can receive a payroll remittance advice from an employer as a paper paycheck stub, email document, or a statement available through an online application like a payroll portal.
The most basic type of a remittance advice is a physical paper-based document sent through mail:
Traditional letter stating the amount paid, the invoice number, along with any other relevant details.
Some vendors make it easier for customers to send the required information in the correct format back with a payment by attaching a removable remittance slip to an invoice.
The payer can simply detach the remittance slip from the document at the perforated line, complete it with the relevant details, and return it to the provided address.
Compared to traditional post, email is a faster option of sending out remittance letters, especially if you use:
1. Email templates (e.g., Microsoft Excel or Word, Google Sheets or Docs) to maximize efficiency when creating and customizing the document for each recipient.
2. Appropriate and correct email address (e.g., seller’s accounting or Accounts Receivable department) so that the email does not get delayed or even lost when sent to a general company email address.
Even if you pay online, you can still help the seller match your payment with the correct invoice in its accounts receivable by sending an email to confirm the payment with the associated invoice reference numbers.
The most efficient way to issue a remittance advice is through a software program that does it for you automatically.
Modern accounting or ERP systems can automatically generate remittance notes and email them to any number of payment recipients.
There are also scannable remittance slips that can be easily scanned for online tracking and electronic record keeping.
10 things every remittance advice should include:
1. Payer name
2. Payer address and contact details
3. Payee name
4. Payee address and contact details
5. Method of payment
6. Amount of payment
7. Date of payment by the payer
8. Expected date of payment receipt by the payee
9. Reference information (e.g., number and date of an original invoice, transaction, or insurance claim; employee number and payroll period; patient number)
10. Tax information (e.g., tax number, gross and net amounts paid)
Here is a sample remittance advice email or letter:
|Remittance Advice Example|
|Subject:||Remittance Advice – Payment Confirmation – [invoice or other reference number]|
|Body:||For your reference, this is to confirm that a payment of [amount] in respect of [invoice number or other reference] was made on [date] by [payment method] and so should arrive to your account [estimated time period]. Should you have any further questions, please do not hesitate to contact us.|
|Signature:||Best Regards, [contact details of a staff member or a department that deals with accounts payable queries]|
In general, a remittance letter does not have to be lengthy or complicated, it just needs to include enough information to let the payee know how much the payer has paid for what and when.
However, the complexity and level of detail required for a remittance advice may increase depending on the method and purpose of the payment.
A single-invoice remittance slip is much more straightforward than a remittance statement of a large entity that can batch together hundreds of invoice numbers.
More information is needed when you are settling an invoice with a check or a bank transfer, compared to an online payment in which most of your information is transmitted to the payee automatically.
Remittance statements in the public sector, specialized fields or highly regulated industries like healthcare and insurance can be very complex.
Payroll remittance slips are required, often by law, to include a number of specific details, such as payroll period, employee earnings, contractor hourly pay, overtime, vacation pay, taxes and other deductions, pension and other contributions.
Some sellers may request that a remittance advice is returned to them in a specific format, in which case they typically provide buyers with a template (e.g., pre-filled detachable perforated part of an invoice, check stub, or standardized bank transfer order form–often computer-readable).
In some cases, an entity may decide to prepare a remittance advice for its own internal purposes only.
6 steps to process a buyer’s remittance advice in a seller’s accounts receivable:
1. Bank statement: Obtain a detailed bank account statement for the period.
2. Remittance advice: Gather all remittance letters received for the period.
3. Journal entry: Post double-entry journals to record the customers’ payments in the general ledger:
|Reasoning||Increase cash||Reduce a customer’s account balance|
Alternatively, review the system-generated transactions that automatically interfaced into the accounting software.
4. Reconciliation: Investigate and correct any discrepancies, using the remittance advice documents as a reference to match bank transactions with the appropriate open invoices in accounts receivable.
5. Aging: Review accounts receivable aging report by customer and follow up on any overdue payments.
6. Records: Keep a record of all received remittance notes for reference purposes in case of any future discrepancies or disputes.
Even when a remittance advice is not a mandatory requirement, it gives the recipient the courtesy of knowing that the payment is on the way and helps match it with the specific accounts receivable invoice without having to contact the sender to find out what was included in the payment.
In some industries, the use of a remittance statement is a standard and widely used practice.
With online payments, the need for and popularity of a remittance advice has plummeted.
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