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What Is Remittance Advice? Definition, Examples, and Advice for AR Teams

Published on 6 min read

Accounts receivable teams depend on remittance advice to complete cash application. Remittance advice can arrive through multiple sources and with varying formats, making AR staff’s jobs harder.

In this blog, learn more about remittance advice and how to ease your team’s processing and matching of it.

AR professional pointing at a chart, teaching another AR professional what remittance advice is

Maintaining accurate records is essential for any accounting team, and remittance advice plays an important part in helping you match incoming payments to the right invoices.

The trouble is that the process of sourcing and interpreting remittance advice is a notoriously challenging one. This is especially because there’s no standardized format that all companies use for remittances. Accounts receivable (AR) staff also typically have to do all the matching manually.

In this article, we’ll explain what remittance advice is, the challenges associated with processing remittance slips, and how technology can help AR teams surmount those challenges.

We’ll cover:

What is remittance advice?

Remittance advice refers to the clarification customers provide along with their payment that tells accounts receivable staff what invoice a payment is for. It can also act as confirmation that a payment is on the way. Some companies call this a remittance slip, or even a payment voucher.

AR departments depend on remittance advice to be able to complete cash application (the process of recording revenue once you’ve received a payment).

How are remittance slips generated?

Accounts payable (AP) departments will generate remittance advice slips to accompany payments to their suppliers. The supplier’s AR staff depend on remittance advice to be able to match payments with their respective invoices.

These slips typically provide information about which invoices are being paid and the amount of each payment. Occasionally, the remittance advice slip will show any adjustments made to the payment total (such as deductions or credits).

The AR department will then use the information on the remittance slip to update their records and apply the payment to the correct invoice(s).

In some cases, customers use accounts payable software to automate the process of generating remittance advice.

For instance, as an AR professional, you might receive an automated email marking a payment as approved by the customer’s AP department. This will often be followed by another email advising that the payment is on the way, followed by a final email confirming the invoice has been ‘paid’.

Is remittance advice proof of payment?

Remittance advice is not proof of payment, but simply a confirmation that payment was sent.

There are things that can go wrong between a buyer sending a payment and the funds hitting the supplier’s bank account (like incorrect information or insufficient funds causing an electronic transfer to fail).

For this reason, an auditor wouldn’t recognize a remittance slip as confirmation of the payment’s receipt. Auditors will rely on an actual bank statement to confirm proof of payment.

For internal purposes, however, a remittance slip provides helpful documentation of the payment date and which receivable(s) to match it with.

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What information does remittance advice contain?

The type of information included in remittance advice will differ depending on what payment method was used. For example, checks are often accompanied by lengthy paper remittance advice, whereas automated clearing house (ACH) payments might exclude remittance information altogether.

That said, here is the information basic remittance advice will contain:

  • Payee and payer names and contact details
  • An email address (for emailed remittance advice)
  • Invoice date and invoice number
  • Related purchase order number
  • Payment method and currency
  • Description of services of products
  • Payment amount and date

Highly detailed remittance advice slips may also include:

  • Payment reference number
  • Paper document number
  • Gross and net amounts
  • Discount taken
  • Deductions
  • Amount withheld

You might also see the amount paid by invoice number (or payroll period), the credit amount issued with credit reference numbers, or an expected receipt date if the electronic funds transfer is not immediate.

What does remittance advice look like?

Remittances can arrive through mail, email, Excel, electronic data interchange (EDI), or accounts payable portals. Here’s an example of what a remittance slip commonly looks like:

Remittance advice example for a customer in the construction industry
Remittance advice typically lists all the invoices being covered with a payment, along with the invoice numbers, dates, and other relevant information such as purchase order numbers. In the above example, the customer has also noted the discounts they have taken.

3 frequent challenges with remittance advice

AR teams often experience challenges when manually matching remittance advice with invoices. Chief among these challenges are:

1: Dealing with disparate sources and formats

Retrieving remittance advice from multiple customers means dealing with disparate sources and formats. There is no standardized format for remittance advice—it will differ based on the company and the payment method used.

Checks might include remittance information (the invoice number) in the memo line or in an accompanying document. Meanwhile, for ACH, wire transfers, and virtual cards, the remittance advice arrives separately in different formats.

Also, buyers are not technically required to send remittance advice (although it is courtesy). This means you might not receive a remittance at all.

When payment arrives without remittance advice, AR staff must contact customers for clarification. This will traditionally involve a series of emails or phone calls.

When remittance advice does arrive—be it by mail, email, Excel, or AP portal—the task of retrieving it is equally time-consuming. This is especially challenging if most customers are using AP automation platforms to send remittance advice, because your staff will undoubtedly have to access multiple online portals, each with a different log in. As your customer base grows, this becomes harder and harder to keep up with.

2: Illegible remittance data

Remittances can be notoriously illegible, too. Think blurred images, missing characters, and sometimes even handwriting. This can make the process of matching remittance slips with open receivables extremely difficult.

Example of two remittance slips for check payments: 1 is legible, the other is illegible
The left example is what a remittance advice slip should look like (in this case accompanying a check). But let’s say your customer’s printer was almost out of ink. In this case, the document they sent might have misaligned columns or illegible characters, making it difficult to read.

Because companies can have varying approaches to how they format remittance slips, this can make it difficult for AR staff to be sure they’re applying payments correctly.

3: Complex cash application

The actual process of matching remittances with open invoices (even when all the details are present and accurate) is complicated. One payment could be paying 50 invoices. And there may be short-paid invoices.

And then there are those times you have the misfortune of receiving a payment covering multiple invoices, with deductions applied, and without any accompanying remittance advice.

Complex situations like this can create entire workdays of fact-finding, troubleshooting, and back-and-forth communications with customers for your AR staff.

How automation can streamline the processing and matching of remittance advice

The manual cash application process can be a frustrating task for AR teams, as they have to deal with all the above challenges in concert. Up until recently, companies were stuck spending countless human hours resolving individual casesduring cash application.

Versapay gives AR teams a much simpler way to manage and match remittance advice with open invoices. Our advanced cash application solution captures and normalizes data for various types of remittance advice and matches these to open invoices using machine learning.

What's more, payments made through Versapay’s Collaborative AR Network automatically give context about what the payment is for, eliminating the need for a separate remittance slip. For the outlying cases in which your AR team does need to request clarification from a customer, they can do so seamlessly through Versapay’s cloud-based collaboration tools.

Want to see for yourself how Versapay's advanced cash application works? Watch our on-demand webinar, "How Automated Cash Application Delivers Better Results With Less Work."

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