Remittance Advice Meaning: Format, Example, and GST Relevance

Imagine you're a supplier who just received a $15,000 payment from a client. The problem is you have five outstanding invoices totaling $28,000, and you’re left wondering: Which ones did they really pay for?

You spend the next hour digging through emails, calling accounts departments, and trying to piece together what this payment actually covers. Meanwhile, your accounting is delayed, your cash flow projections are off, and you're frustrated by the unnecessary back-and-forth.

This entire headache could have been avoided with simple remittance advice. Continue reading to understand remittance advice and its relevance.

Remittance advice is a document used during payment processes. Basically, it works as evidence of a payment and is sent by a customer to a business, supplier, or a certain type of provider. The information a remittance advice contains usually includes the name of the payer and the payee, the amount being paid, the date of payment, and the invoice number. 

Note: It’s not necessary to send remittance advice with payments. It’s mostly seen as an act of courtesy that signals transparency and clear communication.

Remittance advice is sent by the payer once they have transferred the funds to the supplier, detailing to them about what the transaction is about and how much amount is being paid. Consequently, it confirms to the supplier or businesses that a payment has been initiated.

From this remittance advice, the business can:

• Figure out which invoice a payment is for, especially if multiple bills are paid at once.
• Keep records of that specific transaction. 
• Prevents mix-ups about which bill was settled.
• Track and reconcile payments quickly and easily for accounting and audit purposes. 

To understand how exactly remittance advice works, consider this scenario:

Let’s assume you are an exporter of textile fabric, and you ship goods worth $50,000 to a buyer in Germany. Once the shipment is delivered, you raise an invoice.

A week later, you receive $48,500 in your bank account. Now, as a business, your first reaction after seeing the payment receipt is concern. You would clearly wonder if the buyer underpaid or whether there was an issue with the shipment, and how it’s going to affect your cash flow.

Then you receive a document from the buyer called remittance advice.

In that remittance advice, the buyer clearly mentions:

• Invoice amount: $50,000
• Bank charges deducted: $500
• Early payment discount: $1,000
• Total paid: $48,500
• Payment reference number / Transaction ID

Now you understand exactly why the payment amount is lower and which invoice the payment is linked to. As an exporter, this is extremely useful because it helps you:

• Match payments with invoices
• Avoid disputes with overseas buyers
• Maintain accurate accounting records
• Manage cash flow more confidently

Remittance advice is used by anyone who sends or receives business payments and needs to track payments accurately. If your business handles regular payments like supplier bills, customer invoices, or partial payments, remittance advice makes life so much easier. It’s a simple way to explain the payment and ensure nothing gets miscounted or misfiled. 

The common thread tying all those who use it is the need for clear documentation of what payment is for what purpose. Some examples of its users include:

• Any business that pays bills or receives payments to keep track of which invoices have been paid and ensure proper accounting records.
• Healthcare providers and insurance companies to explain which medical claims were paid. 
• Banks provide payment details when processing wire transfers, ACH payments, and other electronic transactions.
• Suppliers and vendors for quickly identifying which customer paid which invoice.

There are actually no rigid types into which you can divide remittance advice. They can come in several different types, but the most common ones include:

1. Basic remittance advice

This one is the simplest type. It’s paper-based with information like payment amount and invoice numbers, and was mostly used earlier, attached with the checks. 

2. Electronic remittance advice (EDR)

As the name suggests, this type is sent digitally, either via email, electronic data interchange (EDI), or website portals. Nowadays, EDR is sent automatically after the payment is initiated using sophisticated software tools. 

3. Scannable remittance advice

Their specialty is that they contain barcodes or other machine-readable information so computers can automatically process the payment information.

4. Removable remittance advice

Also termed as remittance advice slip, these types often come attached to a check as a tear-off slip at the bottom. You tear it off and keep it for your records while depositing the check.

In accounting, remittance advice has the most significant use. It’s required during the reconciliation of accounting records that involve matching payments received with outstanding invoices. This is how it happens:

1. Accounts receivable: When money comes in, accountants use remittance advice to mark which invoices are paid.

2. Cash application: The correct payment is applied to the correct customer account.

3. Audit trail: A paper trail is created showing why payments were recorded in specific ways.

4. Month-end closing: Helps accountants finalize books by confirming all payments are properly allocated.

In simple terms, let’s say a customer pays you 5 invoices totaling $10,000, the remittance advice tells your accountants exactly which 5 invoices to mark as paid and simply avoids the guessing game. 

Remittance advice in bank transfers usually involves wire transfers and large payments. It’s mostly relevant when making international payments. This is how it works:

• When someone sends a wire transfer, they can include remittance information
• The bank passes this information along with the money
• The recipient's bank delivers both the funds and the remittance advice

Healthcare industries involve the use of remittance advice during insurance claim processes. Insurance companies pay healthcare providers for patient treatments. When a hospital treats patients, they bill the insurance company. 

The insurance company sends one payment covering many patients, along with remittance advice that breaks down each claim - showing what was paid, denied, or adjusted, and why. This helps hospitals know which patient accounts to update and what to bill patients directly.

An invoice is a bill sent by a seller to a buyer requesting them for payment for goods or services provided. It covers details about what was sold, the quantity, the price, and the total amount due. Invoice is a completely different document from remittance advice.

Payment receipt, as it’s clear from the name itself, is a document that acknowledges that payment has been received and serves as proof of the transaction. Let’s look at this table to see how it differs from remittance advice. 

Remittance advice can be in the following formats:

1. Paper-based: This is the conventional format where remittance advice is a printed or manually filled document. It usually includes details like invoice references, amounts paid, and payment dates. 

2. EDI-based: EDI (Electronic Data Interchange) remittance advice is mostly used by large companies that deal with a high number of payments every day. Instead of sending payment details manually, they share the information through a structured electronic format. 

3. Email: Email remittance advice is one of the most common formats today. Usually, the customer sends the payment details either in the email itself or as an attachment. It keeps everything neatly documented for the future.

4. Web-based: Web-based remittance advice is shared through an online portal where suppliers can log in and check payment information anytime. This format comes in handy when a business receives frequent payments from the same customer.

Not all remittance advice will have the same information. It depends on the purpose and industry where it’s used. Still, most of them will surely have key details like:

• The name and address of the customer making the payment
• The name and address of the business receiving the payment
• The payment amount and method, such as bank transfer, checks, wire, or online payment
• The invoice number and invoice date, so that the payment can be matched correctly

A brief description of the goods or services provided, to avoid confusion

The remittance advice usually includes a Header area containing the document title, remittance advice number, and date. Next, the payer’s contact information, including address, phone, and email and then the payee’s information and customer account number.

Then, how the payment was made (wire transfer), the payment reference number, the date, and bank used, and a detailed invoice breakdown. Check out these templates for a clear understanding:

Creating remittance advice is an extremely simple process. All you need to do is follow the given steps:

1. Collect details about all the invoices you're paying. Make sure any discounts, invoice numbers, and amounts are all clearly mentioned. 
2. Choose a format for the documents. It can be either your accounting software template, Word/Excel template, or your bank’s remittance form. 
3. Provide payment details, including payment method and reference, payment date, and total amount. 
4. Notify about each invoice covered in the payment and add totals.
5. Before sending in, double-check all numbers match, verify invoice numbers are correct, and ensure the total matches your actual payment. 
6. Finally, send it by attaching to a check, uploading to the supplier portal, via Email as a PDF, or through the accounting system. 

Some may find remittance advice a minor document, but it plays a big role in keeping business payments smooth and stress-free. Here’s why that’s the case: 

1. Makes payment tracking much easier

It helps match payments to the right invoices. Rather than guessing which invoice a payment belongs to, the details are already mentioned clearly, saving time for finance teams and reducing errors during reconciliation.

2. Improves cash flow planning

When a supplier knows a payment is on the way, it becomes easier to plan expenses, manage payroll, or schedule future purchases.

3. Reduces follow-ups and payment disputes

Remittance advice cuts down the usual “Have you received the payment?” conversations. It gives suppliers confirmation that payment has been initiated and also clarifies if there were deductions like discounts, bank charges, or partial payments.

4. Keeps records clean and organized

For both buyers and sellers, remittance advice acts like a clear payment trail. It becomes useful during audits, monthly closing, or whenever a business needs to review past transactions. Simply put, it makes financial recordkeeping far more structured.

While sending a remittance, take extra precautions to avoid these common mistakes:

• Typing the wrong invoice number.
• Entering an inaccurate amount. 
• Using an old supplier address, account number, or contact details.
• Not specifying the currency in international transactions.
• Showing a deduction or adjustment without providing a reason.
• Sending the same remittance advice twice for a single payment.
• Confusing the invoice date with the payment date, or using the wrong payment date entirely.
• Taking an early payment discount, but not clearly showing the calculation on the remittance.  

Remittance advice is basically a communication tool between payers and receivers, bringing the much-needed clarity to business payments. Granted, it’s not mandatory to use remittance advice, but it goes a long way in showing professionalism. Plus, it helps prevent payment confusion, accounting errors, and disputes.

And to make sure your payments are processed smoothly and efficiently in the first place, using the right tool is what makes all the difference. If international transactions are a part of your daily business operations, consider Xflow. 

Xflow is a cross-border payment platform that simplifies every transaction with fast processing times, transparent pricing, zero FX markup, multi-currency accounts, free eFIRA issuance, and so much more!

Sign up with Xflow now and find out for yourself!