Before we begin, let’s understand – what is remittance?
Remittance is the action of transferring money in payment of goods or as a gift to another bank account.
Often business terms seem tricky and can change the whole concept of a business transaction. Being a newcomer to the business world, getting accustomed to such new terminologies is vital.
Let’s discuss more on this!
Amidst your business hustle and bustle, if you miss out on a single invoice payment, which has already been done but not yet recorded- then you probably keep breaking your head the whole day to fix your business accounts. Isn’t it?
Remittance advice could be of great help in bookkeeping. Wondering how? Get your answer here!
Remittance advice meaning
Remittance advice is an official notification or a document sent by the customer to the supplier informing about the completion of a particular invoice payment. The details to be included depends upon the type and purpose of payments.
Check out the section below to know what gets included in remittance advice.
What details are included in remittance advice?
It includes the details related to an invoice- the invoice number, amount, payment method. Payment and invoice date. Though this data only gets included in the remittance is sent to meet a bill or invoice obligation.
Remittance advice for gift purposes is a bit different from the former one. It includes the details of the receiver, organization name (if applicable), address, postcode, and contact number.
Though it is becoming less common in most industries, there are three main types of it. Let’s discuss that!
As discussed earlier, the variation in remittance advice depends upon the type of invoice and the purpose of the transaction. Hence, there are three main types and those are:
- Basic remittance advice: In this type, the note or letter includes the most basic information that is the invoice number and payment amount.
- Removable invoice advice: Some suppliers add a removable slip with the invoice which is to be filled in by the customer and that is known as removable invoice advice.
- Scannable remittance advice: As the name suggests, this is the type that is scanned for electronic records for tracking business finances.
Remittance advice is seen as a courtesy that maintains a good line of communication.
What is the importance of remittance advice?
Besides maintaining business relationships, it helps mainly in record-keeping for the ease of maintaining and tracking business financial status. Remittance advice acknowledges that the payment for a particular invoice has been made for ease of the supplier.
In the same way, payroll remittance advice notifies the employees about their salary and helps them in verifying the amount.
Even some of the financial institutions and money transfer companies do send remittance advice to the receipt after completing the requested payment. The money is transferred through various electronic modes and helps the receiver to verify the amount.
Lastly, Electronic Remittance Advice (ERA) is used by the Medicare and Insurance sector that provides patient details, amounts, and other vital information to the healthcare providers. This helps to maintain the cash flow, patient account details, allows one to rectify the billing codes or supplementary policy insurer for adding allowable charges.
Then, is it proof of payment?
Well, not actually! Often wire transfers don’t reach the receipt on time due to the error in global transactions and hence, it is not reliable to prove the existence of cash receipt. It only notifies the payment process to the payee.
Though all business sectors do not generate remittance advice, some of the industries do follow this process. Let’s see how it is done!
How to generate remittance advice?
Some online software does generate remittance advice and send them through emails to the payment receiver. One can customize the format of this payment documenting financial tool through Microsoft word or excel, Google doc or sheets to create one format. EDI(Electronic Data Interchange) is the old school technique or mode of business communication between trading partners and is still in use as per the various surveys.
Moreover, Remittance advice can be generated through paper-based modes as well.
If you wanna follow this to notify your suppliers about the payment- get the facts as to how to send it!
How to forward remittance advice?
As it is not legally binding, hence, there is no such formal method of sending remittance advice. Moreover, it can be sent through email, along with a cheque, and also in the form of a removable slip created along with an invoice which will be returned by the customer after filling it.
Some of the best ways to send remittance advice are:
Mainly there are two ways by which you can send remittance advice – email or snail mail. The former one is way faster than the latter one and ensures that it does not get lost in the way.
Some frequently asked questions on remittance advice:
No, it is not obligatory and does not require much effort in generating one. It is only intended for record-keeping purposes that help mainly the supplier.
First, confirm the details of the bank account deposit.
Review the transaction- whether debit or credit.
Then follow-up to figure out discrepancies if any.
Lastly, review the account receivable.
With the increasing use of online payment modes, the need for remittance advice is getting subsided and considered to be a great alternative to it.
It is one of the old-school techniques for notifying the vendor about the payment. Selecting an online payment system does not require sending remittance advice. But a thorough knowledge of such techniques is helpful for a good start of your business career.