For accountants advising clients or managing accounts in organisations of any size, clear remittance advice practices can prevent payment mix-ups and simplify bank reconciliation.
Here’s what you need to know about this fundamental business tool.
1. What is a remittance?
At its simplest, a remittance is paying money to another party. This could be a payment for goods or services or even a gift. While the term is often associated with international transfers, it applies equally to domestic payments between businesses or individuals.
2. What is remittance advice?
Remittance advice is a formal notification from the payer to the payee confirming payment details. While historically, this might have been a tear-away section at the bottom of an invoice attached to a cheque, modern remittance advice is often an automated email from accounting software.
3. Why use it?
Remittance advice helps the receiver allocate incoming funds correctly – useful when paying multiple or short-paying invoices. Without remittance advice, payments could be allocated against the wrong invoices or worse, credited to the wrong customer entirely.
Remittance advice can also serve as an early warning system for payment issues. If a supplier receives remittance advice but doesn’t receive the actual payment, they can quickly flag this discrepancy. This helps catch common payment problems early, such as when a payment has been prepared but not authorised in online banking or accidentally sent to the wrong account.
4. What should business remittance advice include?
Clear remittance advice should include all information the receiver needs to allocate incoming funds correctly. Elements include:
- The customer or payer’s name
- Payment date
- Purpose of payment (invoice numbers or account references)
- Payment amount
- Payment method (such as BPAY, EFT, or credit card)
- Contact information for queries
5. How do businesses send remittance advice?
Most businesses generate remittance advice directly through their accounting software when preparing payments. You can also send it via online banking platforms, email or mail.
6. How can I generate remittance advice?
- Most, if not all, accounting systems give you the option to print or email remittance advice, so you can still post by snail mail if you’d prefer to.
- Banks and online payment providers often give the sender the option to send a notification of payment directly from online banking by SMS or email.
- For those who use or receive cheques, they could be attached to the cheque.
- They don’t have to be complex. Often, using the reference field in online banking is sufficient.
7. Do I need to send remittance advice?
No, but experts recommend sending it. Many accountants find it helpful to prevent payment allocation errors and avoid situations where payments might be credited to the wrong customer account. It’s particularly useful when payments are delayed or misdirected – recipients who receive remittance advice can quickly alert payers if expected funds haven’t arrived. This early warning system can be especially valuable in today’s business environment where invoice scams are increasingly common.
8. Is remittance advice proof of payment?
No, remittance advice simply notifies the recipient that payment has been processed. It should always be verified against actual bank receipts or statements. Think of it as a payment notification rather than payment confirmation.
The IPA’s BAS & Bookkeeping Bundle is a series of live sessions over the coming months designed to elevate your skills in managing key aspects of bookkeeping and payroll, including cashflow mastery. More information here.
More information on the IPA’s webinar on Mastering Cashflow Workshop on 3 April here.
