What is Remittance Advice?
A Remittance Advice is a document or electronic message sent by a customer (the payer) to a vendor (the recurring-revenue company) that confirms a payment has been made and details exactly which outstanding invoices the payment is intended to cover.
In SaaS finance, remittance advice is the critical link between the cash receipt (which hits the bank account) and the corresponding invoice in the Accounts Receivable (AR) subledger. Essentially, it provides the instruction manual for the Cash Application process, telling the finance team: “We paid you $X.XX—here are the specific invoice numbers and amounts to mark as settled.”
In simple terms, it tells finance: “We paid you. Here’s how to match it.”
Without it, A/R teams spend hours tracing mystery payments and correcting misapplied cash.
Why is Remittance Advice Important?
Remittance advice is critical for clean cash application, accurate A/R balances, and a smooth financial close.
- Accurate Cash Application: It ensures that incoming lump-sum payments are correctly allocated across multiple invoices, partial payments, or credit memos, preventing misapplication errors.
- Clean AR Aging: Without remittance advice, a payment might land in the bank, but the corresponding invoice remains marked “open” in the AR ledger. This creates phantom receivables and distorts the true Days Sales Outstanding (DSO).
- Faster Month-End Close: By automating the matching process, remittance advice reduces the manual time spent by AR clerks chasing mystery payments and tying out bank statements to the subledger.
- Audit Trail: The advice provides an auditable document proving the customer’s intent for the payment, which is essential for compliance.
Remittance Information to Include
For a remittance advice to be useful, it must contain enough detail for the AR system to automate the matching process. Key elements found on a remittance advice include:
- Payer / Customer Name
- Payment Amount and Currency
- Payment Reference Number (bank reference, transaction ID, or remittance ID)
- Invoice Numbers Covered
- Amount Applied to Each Invoice
- Adjustments or Deductions(credits, discounts, short-pays, withholding tax, disputes)
- Payment Method (ACH, wire, check, card)
Types of Remittance Advice
The format and delivery method of remittance advice often dictate how difficult it is for an AR team to process and match.
| Type | Description |
|---|---|
| Paper | Physical document included with a mailed check |
| PDF or CSV file attached to an email, or payment details embedded in the email body. Usually sent with ACH/wire payments | |
| Electronic Remittance Advice (ERA) | Structured, machine-readable data sent via Electronic Data Interchange (e.g., EDI 820 message) |
| Scannable | Designed for OCR extraction and automated matching |
| Portal-Based | Customers upload payment details directly into billing or vendor portals. |
| Basic | Lists only amount and invoice numbers |
| Detailed | Includes line-item allocations, deductions, discounts, and short pays |
Remittance Advice Process
The remittance advice process is a subset of the larger Cash Application workflow:
Step 1: Payment Issued: Customer Issues Payment through ACH, wire, credit card, or check.
Step 2: Remittance Is Sent: Delivered via email, file upload, or automated EDI feed.
Step 3: Cash Application: A/R matches the payment to invoices using the remittance data.
Step 4: Reconciliation: Invoices are marked “Paid,” and the A/R subledger auto-updates.
Step 5: GL Sync: The cash receipt posts to the general ledger with the correct invoice mapping.
Common Challenges With Remittance Advice
Recurring-revenue companies often face:
- Missing or delayed remittance advice leading to unidentified payments
- Unstructured formats (PDFs, spreadsheets, portal notes) that require manual parsing
- Short-pay deductions without explanation
- High-volume invoice environments where matching becomes labor-intensive
- Siloed systems that separate payment data from billing and A/R
- Duplicate invoice numbers across product lines or subsidiaries
How Ordway Helps in Remittance Advice Management
Ordway centralizes and automates the entire remittance lifecycle, eliminating the manual steps that lead to misapplied cash, reconciliation errors, and audit issues.
- Centralized Remittance Capture: Ordway collects remittance data from every source—email, PDF, EDI 820 files, portal uploads, or API—so AR teams no longer track information across multiple systems.
- AI-Powered Data Extraction: Built-in AI and OCR read and normalize unstructured remittance files automatically, removing manual data entry and reducing error rates.
- AI-powered Cash Application: Ordway’s matching engine applies payments to invoices using invoice numbers, customer IDs, fuzzy logic for typos, or amount-based matching when remittance data is incomplete. This delivers high auto-match rates with minimal human review.
- Automated Subledger and GL Sync: When cash is applied, Ordway updates AR balances, adjusts revenue schedules, and posts the correct entries to the general ledger (NetSuite, Sage Intacct, QuickBooks, Xero). This keeps AR, cash, and revenue aligned and supports ASC 606 compliance.
- Exception Management Workflow: Short pays, deductions, and mismatches are flagged automatically and routed to the right team with full context, reducing resolution time from days to minutes.
Example: Applying a Payment with a Short Pay and Credit
A recurring-revenue business receives a $47,500 ACH payment. The customer sends a remittance email explaining how to apply it:
- INV-101: $25,000 (paid in full)
- INV-102: $25,000 (short paid by $2,500 due to an open dispute)
- Credit Memo CM-45: –$2,500 applied to INV-102
Without Automation
The AR team sees the $47,500 deposit but has no context. They search inboxes for the remittance, manually match the payment to both invoices, apply the $2,500 credit memo, and flag the short pay for follow-up.
This takes 45–60 minutes and increases the risk of misapplied cash or incorrect AR balances.
With Ordway
Ordway automatically pulls the bank deposit and remittance email, extracts the details, and matches:
- $25,000 → INV-101
- $22,500 + CM-45 → INV-102, closing the short pay
- $2,500 dispute flag → routed to the account owner
The full transaction is reconciled in under two minutes, AR and the GL update instantly, and the team receives a clean audit trail with zero manual work.
Failure Point: The Unapplied Cash Risk
The biggest failure point in remittance processing is simple: cash arrives, but no remittance advice does. Without clear instructions on which invoices the payment covers, the funds sit in an unapplied cash or suspense account.
This creates a chain reaction of accounting problems. AR appears overstated, DSO drifts upward, and customers may get chased for invoices they already paid. Auditors see a growing unapplied cash balance as a major control weakness in the cash-application process. It also breaks the link between AR and deferred revenue, forcing messy manual corrections at month-end.
Takeaway
Remittance advice is the link that keeps payments and invoices in sync. Automating its capture and matching is what separates a smooth, 3-day close from a chaotic, 10-day scramble.
Other Glossary Terms
Subscription Pause
Credit Memo vs Debit Memo
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