What is Remittance Advice & How to Streamline It with AI

What is remittance advice and why is it important? 

Within a financial transaction, a remittance advice — sometimes called a remittance slip — is a document a buyer provides in response to an invoice indicating to the seller that the corresponding payment has been initiated. This notification, in turn, is helpful for the seller’s budgeting and accounting efforts. However, the actual processing can quickly become complicated and time-consuming as a remittance will theoretically be received for each invoice sent out.

The actual details of a given remittance can vary wildly depending on the nature of the sale and the overall industry. For example, you’ve likely received an explanation of benefits (EOB) when you’ve interacted with a healthcare provider. These records are remittance advice your insurance company sends to your healthcare provider. And while an EOB may contain a fair amount of information — much of which is mandated by law — a basic invoice might only include an invoice number and the amount being paid.

The mode of transmission can also have an impact on the nature of the document, with the most common remittance types being:

• Email: Perhaps the most frequently used method presently, often generated via a link contained within an electronic copy of the invoice
• Electronic data interchange (EDI): Routinely aligned with e-invoicing efforts, these records transmit remittance information directly to the seller’s back office systems
• Web: Provided to sellers through an e-commerce portal or cloud-based account
• Removable: A paper document that is attached to or part of a paper invoice and that can be easily separated for return to the seller
• Scannable: A physical record designed with machine-readable elements (e.g., barcodes or QR codes) that make it easy to electronically capture the document

It’s important to note that a remittance does not serve as proof of payment as it only indicates that the payment process has been started. There are all manner of interruptions or errors — insufficient funds available, an expired credit card — that can prevent the actual transaction from completing.

What information does remittance advice contain?

Since these documents routinely serve as a direct response to an invoice, it shouldn’t be surprising that they often contain much of the same information as an invoice. However, the featured details will also vary depending on the payment method. Commonly, they’ll at least include:

• Seller company details
• Buyer company details
• Invoice number
• Invoice date
• Purchase order number
• Description of the goods or services delivered
• Payment method and associated details
• Payment tracking information
• Payment date
• Amount paid
• Discounts, deductions, and disputes

How is remittance advice used? 

Given the prevalence of instant and online payment options, sending remittance advice has become less frequent and typically isn’t seen as necessary. However, these notices remain a common courtesy and can help sellers avoid unnecessary processing mistakes while encouraging stronger business relationships.

Cash application

In most cases, remittance information is leveraged by sellers to support their cash application efforts, making it easier to route incoming payments to the appropriate customer account and invoice. In particular, the records prove extremely useful for organizations dealing with high-volume transactions or long-term projects where multiple overlapping invoices might be sent out to a given customer. Similarly, they are also incredibly helpful if incoming payments often cover multiple invoices.

Budgeting

Another common application for remittance advice is to assist with forecasting near-term cash flow. As previously noted, payments for credit-based purchases might take weeks or months to arrive after a service or product has been delivered. But when your business has a strong indicator that this unrealized revenue will soon be converted into cash, you can plan where these funds will prove most useful for your day-to-day or future business efforts.

How do you create remittance slips?

Filling in and submitting remittance details are actions that fall under the purview of the buyer’s accounts payable (A/P) staff. Fortunately, most modern A/P applications simplify the creation of remittance advice, commonly delivering the information as a PDF or spreadsheet that can be forwarded to the seller. Alternatively, many payment channels — even paper checks with their memo line — will offer the ability to embed comments within the transaction.

Of course, it is often wise for the seller to be proactive and offer a formal framework and process for receiving these details, such as setting up a payment portal or providing a standard form alongside its invoices. Otherwise, this information may be sent in an unstructured email, potentially lacking the most relevant details.

How AI can streamline remittance advice processing and matching  

With so much variety in the presentation and format of remittance advice, managing these documents has often been a labor-intensive task. Traditionally, payment information had to be collected from paper documents and manually transcribed into accounting records and systems — an approach prone to human error. And with each mistake, sellers ran the risk of incorrectly applying incoming funds and requesting payment for invoices that had already been settled. 

Even with many of these tasks now being handled by software, remittance advice is routinely submitted in an unstructured format or via multiple channels, still requiring manual collection and collation. However, more modern accounts receivable (A/R) solutions have begun offloading this processing to AI and automation.

According to a 2023 study conducted by PYMNTS of 100 chief financial officers, roughly 90% of respondents indicated that they wanted to increase the amount of automation in their A/R processes. In particular, they felt that more automation would help “lessen friction and disruption throughout the order-to-cash continuum,” leading to fewer errors and supporting instant account updates. 

In all honesty, we couldn’t agree more, which is why we’ve augmented our own Accounts Receivable Automation platform with AI-powered cash application and remittance management. Our software offers a CashMatch AI function that can quickly and accurately apply incoming payments to the appropriate accounts and invoices. 

Our Remittance Advice AI feature can extract the appropriate remittance data from incoming spreadsheets and PDFs, working across various formats and layouts. Even better, the solution will automatically flag anomalies — such as a short payment or excessive discount — meaning that your staff only needs to focus on the exceptions.

Get paid faster with Invoiced 

As we’ve covered, efficient cash application relies heavily on efficient remittance advice management. Our Cash Application software delivers workflow automation and advanced algorithms able to streamline both of these efforts. Even if you’re still dealing with physical checks, we offer a virtual lockbox function that makes it easy to capture and process critical payment details from these paper records automatically. 

Beyond these functions, our Accounts Receivable Automation software empowers you to accommodate flexible payment options from virtual cards to AutoPay to early payment discounts. We’ve even augmented our platform with the global payment capabilities of Flywire software, allowing you to handle payments in 140 currencies.

So if you’d like to see how easy it can be for your staff to manage incoming payments — no matter how complex — schedule a demo today.