Accounts receivable processes generate several pieces of documentation. These range from invoices to dunning notices. Documentation makes tracking and proving payments easier for businesses and their customers. Remittance advice is a less-talked-about piece of documentation that nevertheless plays a crucial role in the AR department.
What Is Remittance?
The term remittance comes from the Latin word remittere, which means “to send back.” In the business world, a remittance is a payment. The customer sends a remittance to the company to pay an invoice or address debt.
A remittance can take many forms:
- Bank draft
- Money order
- Electronic transfer
What Is Remittance Advice?
Remittance receipt or advice is a document that accompanies a payment. It tells the company what invoice or invoices the customer covered. In some cases, customers combine the advice with the payment itself. For example, if a customer pays by check, the check might include a note written directly on it, which states what invoice the payment covers.
Regardless of how customers deliver it, the invoice remittance ideally contains enough information for the company to apply the payment correctly. This includes the following:
- The amount paid
- The invoices the payment covers
- How much of each invoice the payment covers
- The method of payment
- The date of the payment
- The name and contact information for the customer
What Are the Main Types of Remittance Receipts?
Some proofs of payments are more formal than others. Because customers have no obligation to send these, there are also fewer established rules regarding the format and what they include. Consider the following three types:
- Scannable Receipt: This document has a QR code or another machine-readable method for recording the payment. The advantage of this type is that it can automatically update the company’s records.
- Removable Receipt: This is a physical document that the customer can detach from the invoice, copy for their records, and send back. The advantage of this is that it is an obvious way to show that the customer has paid.
- Basic or Standard Receipt: This simple and informal note provides payment proof. Customers might send it as a letter, an email, or even a text.
How Can You Encourage Customers To Send Remittance Advice?
As a supplier, you no doubt prefer receiving payment remittance advice, but customers might see this as an extra and unnecessary step. Thankfully, there are a few things you can do to encourage customers to send receipts with their remittances.
You can first make it easy for customers to find the information they need to fill out the receipt. You can include an invoice remittance with every invoice and encourage them to send the document back as proof of payment. Be sure to have clear instructions.
Companies have also experienced high levels of success by offering incentives for customers who send receipts with their payments. For example, you could set up a loyalty program that rewards customers for frequently sending receipts. Each receipt sent could add to the loyalty points.
How Can AR Software Streamline Receipts?
Accounts receivable software makes it easy to automate every step of the AR process. This includes adding proof of payment forms to each invoice you send out. You can also include the remittance form or links in dunning notice emails. Doing this is especially helpful when your customers have multiple outstanding invoices and make short payments.
Are you looking for software to simplify the AR process for your company? Book a demo with Gaviti to see what it can do for your business and collections.