What Is Remittance Advice and How to Manage It?

23 April, 2024
10 mins
Vipul Taneja, VP, Finance Transformation

Table of Content

Key Takeaways
Introduction
What is Remittance Advice?
Why is Remittance Advice Important for Your Business?
Different Types of Remittance Advice Formats
What Are the Details Included in Remittance Advice?
Example of Remittance Advice
Common Challenges in Managing and Processing Remittance Advice
What are the Problems AR Teams Face With Remittance Advice
Speed Up Remittance Processing With Electronic Delivery
How Processing of Email Remittance Advice Occurs
Using Automation to Streamline the Processing and Matching of Remittance Advice
How HighRadius Can Help Streamline Your Remittance Processing
FAQs on Remittance Advice

Key Takeaways

  • Remittance advice provides an extra layer of security to the invoicing process, prevents fraud, and helps accounts receivable teams reconcile accounts and track cash flow.
  • There are several different formats of remittance advice that businesses may encounter, including paper-based, email, EDI-based, and web-based remittance advice.
  • Automating remittance advice processing saves time and resources, reduces errors, and leads to faster payment processing, fewer exceptions, and improved cash flow.
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Introduction

For businesses, remittance advice holds the key to accurate and efficient financial record-keeping. Understanding the fundamentals of it is essential to maintaining favorable supplier relationships and enhancing your accounting process.

However, grasping and interpreting remittance advice is a notoriously challenging process. Did you know that companies spend countless human hours matching open invoices with payments?

So, if you’re struggling with this issue, continue reading. In this article, we’ll explain what remittance advice is, what information it includes, and how to manage and process it efficiently and accurately.

What is Remittance Advice?

Remittance advice is a document that a customer sends to a supplier to notify them of a payment made. It includes details such as the payment amount, date, and invoice number. It helps the supplier match the payment to the correct invoice and keep accurate accounting records.

While the use of remittance advice originated when checks were widely used, many global businesses still transact via check and send their check remittance advice along with the payment for suppliers to maintain a record. However, even though digital payments are now commonly practiced, remittance advice is still relevant today.

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Why is Remittance Advice Important for Your Business?

  • Remittance advice helps to map payments against orders or customer names, making it easier to maintain accurate records and keep track of payments.
  • If check payments are involved, it helps analysts understand which customers’ checks have been cleared, making the process even more efficient with AI-powered tools.
  • Remittance advice enables businesses to compare actual payments against outstanding payments and monitor customers who prefer paying in installments. 
  • For businesses tracking electronic payments, remittance advice makes it easy to maintain accurate records by simply scanning the remittance data.

Different Types of Remittance Advice Formats

Remittance advice comes in two broad formats: hard copy and soft copy in electronic format. Let’s take a closer look at these formats.

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  • Paper-based remittance advice

     These remittances are usually paper-based documents that are either hand-written or printed. They contain information such as an invoice number and the payment amount. While this format is becoming less common with the rise of digital payments, some businesses still prefer to receive paper-based remittance advice.

  • Email Remittance Advice

    Customers usually send the remittance information through email. The remittance is either present in the body of the email or as an attachment. This format is becoming increasingly common as more businesses adopt digital payments and move away from paper-based processes.

  • EDI-Based Remittance Advice

    An EDI is a combination of alphanumeric characters, making it ideal for businesses processing large payment volumes and seeking to automate their accounts receivable processes. Large enterprises typically send remittances through EDI machines.

  • Web-Based Remittance Advice

    Web-Based Remittance Advice is a digital method of sending payment information from a customer to a supplier using a web-based portal. It’s useful for businesses that process a high volume of payments from a single customer and is commonly used by retail giants like Amazon and Walmart to streamline their payment processes.

What Are the Details Included in Remittance Advice?

When it comes to remittance advice, the information you receive can vary depending on the payment method used. For example, if you’re receiving a check, you can expect to receive a lengthy paper remittance advice with all the necessary details about the payment.

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However, if you’re receiving an automated clearing house (ACH) payment, the remittance advice may not include any information at all.

If the remittance is sent via email, your accounts team can monitor the payment or communicate with the point of contact (POC) in case of any discrepancies. It’s important to ensure that all necessary details are included in the remittance advice to avoid any confusion or errors in the payment process. However, basic remittance advice typically includes the following details:

Field

Description

Customer’s Name

Name of the individual or organization sending the payment.

Customer’s Address

Address of the Customer.

Customer’s Contact Details

Contact information (phone number, email) of the supplier.

Supplier’s Name

Name of the individual or organization receiving the payment.

Supplier’s Address

Address of the supplier.

Payment Date

Date when the payment was made.

Payment Method

Method used to make the payment (e.g., check, electronic transfer).

Invoice/Account Number

Unique identifier for the payment or account being settled.

Payment Reference Number

Reference number associated with the payment.

Amount Paid

Total amount paid by the customer.

Invoice Amount

Total amount due or invoiced.

Amount Applied

Amount applied to specific invoices or accounts.

Outstanding Balance

Remaining balance after the payment is applied.

Payment Details

Additional information or notes provided by the sender.

Example of Remittance Advice

Once you receive the remittance advice, your accounts receivable team will use the information provided to update their records and apply the payment to the correct invoices. This step is crucial in ensuring that payments are processed accurately and in a timely manner.

When you receive remittance advice, you can expect to see a detailed list of all the invoices covered by the payment. This list will include important details such as the corresponding invoice numbers, dates, and purchase order numbers. If the customer has taken any discounts, this information will also be noted on the remittance advice.

Let us consider a buyer-supplier ecosystem where the buyer is PentaCorp, and the supplier is ABCCorp. As PentaCorp releases the payment corresponding to the goods supplied by ABCCorp, they also send remittance advice. The following images include a check remittance advice example:

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Common Challenges in Managing and Processing Remittance Advice

Matching payments to customers and invoices, figuring out what to do if the remittance is different from the receivables, and properly coding all exceptions are the three primary activities involved in posting payments to open receivables. Broken down further, the individual manual tasks include:

  • Identifying the payee and invoice
  • Reconciling payments to receivables if details are missing
  • Determining if prompt pay discounts were timely
  • Deciding if a customer needs to be charged back for underpayments
  • Preparing debit memos for unauthorized deductions (with proper reason codes)
  • Preparing credit memos for authorized promotional adjustments or payment deductions
  • Preparing credit memos for overpayments and payments on account

Now that we’ve looked at the primary activities involved in posting payments to open receivables let’s take a closer look at some common challenges that businesses face when processing remittance advice:

1. Managing multiple payment channels

With electronic payments gaining popularity, businesses must tackle the task of capturing remittance details sent via email, EDI, web portals, and various other channels. Without a streamlined and integrated process, this can lead to duplicated data entry and errors, giving rise to inefficiencies and delays.

2. Reconciling payments to the correct accounts

This can be particularly difficult when payments are received for multiple invoices or line items. Without clear and accurate remittance advice that includes all the necessary details, it can be challenging to match payments to the correct accounts, leading to errors and delays.

3. Processing payments on time

Businesses may also face difficulties with manual data entry, incorrect or incomplete information, and delayed or missing remittance advice. These challenges can result in inefficiencies, errors, and delayed payment processing, which can impact cash flow and cause frustration for businesses.

What are the Problems AR Teams Face With Remittance Advice

Accounts Receivable (AR) teams often encounter several challenges when dealing with remittance advice, including:

Incomplete or Inaccurate Information

Remittance advice may sometimes lack essential details, such as invoice numbers, payment references, or amounts, making it challenging for the AR team to apply the payment accurately.

Delayed or Lost Remittance Advice

If the remittance advice is not sent promptly or gets lost in transit, it can lead to delays in applying payments and reconciling accounts. This can confuse and affect cash flow.

Mismatched Payments

If the remittance advice does not match the actual payment received, either in terms of the amount or the invoices being settled, it can cause discrepancies in the accounts and require manual intervention to resolve.

Communication Challenges

AR teams may face difficulties in effectively communicating with customers regarding remittance advice, especially if there are discrepancies or payment-related issues. Clear and timely communication is crucial to ensure smooth processing.

Compatibility Issues

If the remittance advice format or system used by the sender is incompatible with the recipient’s accounting software or processes, it can create difficulties in accurately processing and applying the payment.

Addressing these challenges requires implementing automation tools, standardizing remittance advice formats, improving communication with customers, and enhancing integration capabilities with accounting systems.

Speed Up Remittance Processing With Electronic Delivery

Do you remember the old days when remittance details were delivered by courier and A/R clerks had to manually post receipts in the accounting system? It was a time-consuming and inefficient process. But today, things are different. Electronic delivery of remittance details via FTP folders, BAI files, or similar formats streamlines payment posting to your A/R system, saving you time and money.

With electronic delivery, remittance advice in BAI format contains the machine-captured bank routing number, account number, and check amount. You can also add additional details, such as invoice numbers and payment amounts, to the file. However, traditional lockboxes require additional data entry at an added cost. To avoid duplicating data entry into your A/R system, it’s essential to integrate multiple electronic payment channels. This prevents inefficiencies and delays in processing payments. Despite the growth of electronic payments, there remains inefficiency in posting B2B remittance data to the A/R.

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How Processing of Email Remittance Advice Occurs

The shift towards electronic payments has created new challenges for cash application teams. While electronic payments are faster and more efficient than paper checks, the corresponding remittance information provided via email has presented potential issues. To achieve 100% automation of email remittance advice, two key aspects must be considered: linking email remittances to payments and extracting remittance information from emails. Let’s take a closer look at them.

1. Linking payments with extracted remittance information

If you’re in charge of a cash applications, you know how important it is to link payments to their corresponding email remittances. While this can be easy with paper checks, email remittances require a bit more effort.

You can link them manually, which can be time-consuming and delay the cash application process, or opt for an AI-enabled email engine. This tool can accurately extract all the payment and remittance information from the email and even match them up using simple algorithms. Plus, these tools are typically 100% accurate, so you can be confident that you’re not missing any important information.

2. Extracting remittance information from emails

When it comes to extracting remittance information from emails, you might be tempted to use OCR technology. However, this can also be a labor-intensive and resource-intensive process, especially when you have to draw rectangles around each remittance. Plus, it introduces the added cost of paper, which can further stretch your team’s resources.

The good news is that email remittances are actually one of the most convenient forms of remittance to automate. The data is already provided in electronic form, so you can eliminate much of the complexity and errors of OCR. Best of all, an AI-enabled email engine can do all of this without requiring customer-specific templates or IT projects, which can save you time and money in the long run.

Using Automation to Streamline the Processing and Matching of Remittance Advice

As cash applications become increasingly complex, many vendors have tried different solutions to address the problem. However, some solutions, such as repurposing OCR template-based systems, end up transferring the burden of creating and managing templates to the business team, resulting in the manual effort being shifted from applying cash to managing templates. This defeats the purpose of automation and creates a “Template Hell” scenario that extends beyond paper checks and into electronic remittance.

Fortunately, advancements in Artificial Intelligence (AI) and Machine Learning (ML) are now making it possible to automate email remittance processing. AI-enabled solutions can learn to identify emails containing remittance information by examining keywords and attachments and can extract relevant data fields for cash applications. This is true whether the remittance is provided in the email body or an attached file. Best of all, AI-based solutions can eliminate the need to navigate templates and achieve optimal automation rates.

Like other electronic methods for providing remittance, email remittance presents a significant automation opportunity. Since errors due to scan quality and paper formatting are inherently avoided, automation rates can reach 100%. In fact, during implementations, some of the fastest automation rates are realized on customers who submit remittances via email. By automating your cash application process, you can save your cash application team time and money, and focus on more strategic initiatives.

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How HighRadius Can Help Streamline Your Remittance Processing

If you’re struggling with manual remittance processing, you’re not alone. This time-consuming task can be a major drain on resources and can lead to errors and delays in your order-to-cash process. But with HighRadius’ AI-based Cash Application Software, you can streamline your remittance processing and achieve significant savings in time and money.

One of the key features of this solution is AI-based EMail Remittance Capture, which automatically captures remittance information for electronic payments sent via email. This includes tables, plain text, and pdf/excel/word attachments, making it easy to match payments from the banks. This feature alone can save your team countless hours of manual effort, freeing them up to focus on more important tasks.

But that’s not all – HighRadius also offers AI-Based Check Remittance Capture, which automatically extracts accurate and noise-free check remittance information from all industry-standard bank payment file formats and remittance file formats such as PDF, HTML, Excel, JPEG, and more. In addition, HighRadius’ Automated Portal Remittance Capture feature allows you to easily capture remittance information from customer portals, while Unbundled Payment-Remittance Processing automatically links and processes electronic payments and remittances received separately.

By utilizing HighRadius’ Cash Application solution, you can enable 95% straight-through cash posting, same-day cash application, and 100% savings in lockbox key-in fees. This can have a significant impact on your bottom line, helping you to improve cash flow and reduce costs. So why wait? Schedule a demo today to see how HighRadius can help transform your order-to-cash process.

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FAQs on Remittance Advice

1. What is check remittance advice? 

A check remittance advice is a document sent with a check payment that provides details about the payment, such as the invoice number and amount paid. It helps the recipient apply the payment to the correct account and reconcile their records.

2. What is email remittance advice?

An email remittance advice is the electronic version of a check remittance advice. It is a document sent via email that provides details about a payment, such as the invoice number and amount paid. It helps the recipient apply the payment to the correct account and reconcile their records.

3. What is an example of a remittance advice?

Remittance advice example: “Dear [Name], Please be advised that payment of [sum] has been made in respect of invoice [number and reference], via [method of payment], on [date]. Please confirm receipt and contact us if there are any discrepancies. Thank you for your prompt attention to this matter.”

4. What is remittance information?

Remittance information refers to the details provided along with a payment, typically in the form of a money transfer via various payment modes. This information helps identify the purpose of payment, such as an invoice number, account number,amount paid, or any further details about the order itself.

5. Is Remittance Advice proof of payment?

Remittance advice is only a confirmation that money was transferred; it is not evidence of payment. Between the time a buyer sends a payment and the money reaches your bank account, several things can go wrong (such as inaccurate information or insufficient cash, leading an electronic transfer to fail).

Because of this, an auditor would not accept a remittance slip as proof that the payment was received. A real bank statement will be used by auditors to verify payment proof. A remittance slip, on the other hand, offers useful internal documentation of the payment date and the receivable(s) to match it with.

6. What’s the best way to send remittance advice?

The best way to send remittance advice can vary depending on the preferences of the recipient and the available communication channels. Some of the common methods to send remittance advice include email, online portals, electronic data interchange, and postal mail. 

Email: Sending remittance advice via email is a popular and efficient method. You can attach a PDF or include the details directly in the body of the email. Ensure that the subject line clearly indicates it is a remittance advice.

Online Portals: Some organizations provide online portals where customers can log in and access their remittance advice. This method offers a secure and centralized platform for sharing payment details.

Electronic Data Interchange (EDI): For businesses that have established EDI systems, remittance advice can be sent electronically in a standardized format, ensuring seamless integration with the recipient’s accounting systems.

Postal Mail: Although less common in today’s digital age, some organizations still prefer to send physical copies of remittance advice by postal mail. This method may be suitable for recipients who do not have access to email or online systems.

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