Invoicing and documents
Remittance advice
A remittance advice is a document sent by a customer to a supplier to confirm that a payment has been made and to detail exactly which invoices the payment covers.
What is Remittance advice?
When you sell goods or services on credit, your customers might pay multiple invoices at once with a single bank transfer. A remittance advice is the notification they send to explain exactly how that lump-sum payment should be applied. It acts as a breakdown, listing the specific invoice numbers, credit notes applied, and the payment amounts for each. Without this document, your bookkeeping becomes a guessing game. If a customer deposits a large sum into your bank account, you might not know which outstanding balances to clear. This creates unallocated cash in your accounting system, leaving invoices marked as unpaid and potentially triggering unnecessary payment reminders. By requesting a remittance advice, you ensure that every payment is matched correctly, keeping your accounts receivable accurate and your customer relationships healthy.
How Remittance advice works
The process begins when a customer prepares to pay their outstanding balances. Instead of making separate transfers for every purchase, they group several approved invoices into a single payment run. Before or immediately after authorising the bank transfer, the customer generates a remittance advice document. They send this to your accounts receivable team, usually via email. Once the funds arrive in your bank account, your bookkeeper opens the remittance advice to review the breakdown. They match the total payment amount to the bank deposit. Then, they apply the specified amounts to the corresponding invoices in your accounting software. This step clears the outstanding balances and updates your general ledger, completing the payment cycle and ensuring your financial records reflect the true state of your receivables.
- The customer selects multiple due invoices to pay in a single batch.
- They calculate the total payment, deducting any agreed credit notes.
- The customer initiates a bank transfer for the total lump-sum amount.
- They send a remittance advice listing the specific invoices being settled.
- Your bookkeeper uses this list to allocate the received funds accurately.
Worked example
Gulf Trading LLC owes your business for three separate deliveries. They have outstanding invoices for 400, 600, and 250. They also have a credit note for 50. Instead of four transactions, Gulf Trading makes a single bank transfer of 1,200.
They email a remittance advice showing the calculation: Invoice 101 (400) plus Invoice 102 (600) plus Invoice 103 (250) minus Credit Note 05 (50) equals 1,200. When you see the 1,200 deposit on your bank statement, you do not have to guess which bills they intended to pay. You simply follow their breakdown to clear the exact invoices.
Why it matters for your business
Managing cash flow requires knowing exactly who owes you money at any given moment. If customers send payments without a remittance advice, your finance team wastes hours trying to reconcile bank deposits against a long list of open invoices. This delay leaves accounts looking unpaid, which might cause you to put a good customer on credit hold by mistake. It also distorts your aging reports, making it difficult to assess bad debts. Using a system like Paper & Pen, which creates invoices, quotations and receipts, helps you track these allocations clearly once the customer confirms their payment breakdown.
See also
Questions
Common questions
Is a remittance advice the same as a payment receipt?
Do I legally have to send a remittance advice?
Related terms
- Payment receipt A payment receipt is a formal written document issued by a seller to a buyer to confirm that a specific sum of money has been successfully received for goods or services.
- Statement of account A statement of account is a document issued to a customer that summarises all financial transactions, including invoices and payments, over a specific period to show the current outstanding balance.
- Bank reconciliation Bank reconciliation is the process of matching the cash balances in your business accounting records to the corresponding information on your official bank statement to identify and correct any discrepancies.
- Accounts receivable Accounts receivable represents the total amount of money owed to a business by its customers for goods or services that have been delivered but not yet paid for.
- Aging report An aging report is an accounting document that categorises a company's accounts receivable or payable based on the length of time an invoice has been outstanding.
- Credit note A credit note is a commercial document issued by a seller to a buyer, reducing or cancelling the amount owed on a previously issued invoice due to errors, returns, or damages.