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What is a Remittance Advice?

Remittance Advice

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Remittance Advice

A remittance advice is a document or notification sent by a customer to a supplier/vendor to inform them that their invoice has been paid. It serves as a proof of payment and helps suppliers reconcile their invoices with payments received. Typically, remittance advice will detail the invoice number(s), amount paid, and any other necessary information to help the supplier understand the payment.

Remittance advice can be sent in various forms, including:

  • Paper Document: Often attached to a check as a stub and mailed to the supplier.
  • Electronic Notice: Sent via email or through electronic payment systems.
  • Fax: Though less common in the age of electronic communication, some businesses might still send a faxed remittance advice.
  • Integrated Message: In advanced electronic payment systems, remittance information can be embedded directly within the payment message.

The primary purpose is to allow the recipient (usually the supplier or vendor) to match payments received with outstanding invoices. This aids in accurate accounting and can help resolve any discrepancies that might arise regarding payment.

Example of a Remittance Advice

Let’s illustrate the concept of remittance advice with a fictional example.

Example: Remittance Advice in Action

Background:

“Stellar Tech Supplies” is a company that sells office supplies. “Digital Dynamics”, a tech startup, recently ordered a batch of ergonomic chairs and standing desks from Stellar Tech Supplies. The total order came to $5,000.

Scenario:

  • Invoice Issued: Stellar Tech Supplies sends an invoice to Digital Dynamics detailing the items purchased, their individual costs, the total amount, invoice number (#INV12345), and payment due date.
  • Payment Processed: Digital Dynamics processes payments at the end of every month. When they make the payment for the invoice received from Stellar Tech Supplies, they decide to make an electronic transfer.
  • Remittance Advice Sent:
    • Along with the electronic payment, Digital Dynamics emails Stellar Tech Supplies a remittance advice.
    • The email contains the following details:
      • Invoice Number: #INV12345
      • Invoice Date: 1st of the month
      • Total Invoice Amount: $5,000
      • Amount Paid: $5,000
      • Payment Method: Electronic Transfer
      • Payment Date: 30th of the month
      • Notes: “Payment for ergonomic chairs and standing desks.”

Outcome:

Upon receiving the remittance advice, the accounts receivable department at Stellar Tech Supplies can quickly match the payment received to the specific invoice (#INV12345). They update their records to show that the invoice has been paid in full, ensuring that there’s no confusion or discrepancies in the future regarding this transaction.

The remittance advice provided clarity and confirmation of the payment details, making the reconciliation process smoother and more efficient for Stellar Tech Supplies.

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