What is Payment Remittance? Types and Examples

In B2B transactions, efficient cash application is vital for maintaining healthy financial operations. Payment remittance plays a crucial role in this process, ensuring that payments are accurately and timely recorded against outstanding invoices. 

In this blog we will understand payment remittance in cash application for B2B transactions, highlighting its importance, types, and best practices to optimize the process.

What is Payment Remittance?

Payment remittance refers to the process of transferring funds from a buyer to a seller as a settlement for goods or services provided. This can be within the same country or across international borders. Essentially, it involves sending funds to settle a debt or an invoice. 

Companies generally receive payment remittance advice from customers, which informs them of a completed invoice payment. Customers typically send this document along with the payment. Some companies prefer to include a payment remittance advice section on their invoices for customers to fill in and return.

Sending payment remittance advice is not mandatory when transferring money. It is considered a courtesy, as it helps suppliers match payments with invoices and aids in record-keeping. Additionally, it can help maintain good communication between businesses.

Importance of Payment Remittance in B2B Transactions

1. Accurate Financial Records: Proper remittance ensures that payments are correctly applied to outstanding invoices, maintaining accurate financial records and avoiding discrepancies.
2. Cash Flow Management: Efficient remittance helps businesses manage their cash flow better by timely clearing receivables and reflecting real-time financial status.
3. Customer Relationship Management: Timely and accurate application of payments enhances customer relationships by minimizing payment disputes and fostering trust.

How Does a Payment Remittance Work?

A remittance transaction involves transferring funds from a customer to a seller, often with the help of intermediary agents or financial technology companies. These intermediaries handle any fees or exchange rates that may apply. Here’s a step-by-step breakdown of how it works:

1. The person or business wanting to send money initiates the transfer.
2. The intermediary agent collects any applicable fees.
3. The receiving agent is notified of the incoming funds and applies any necessary exchange rates. In some cases, the receiving agent may deduct additional fees from the incoming funds.

This entire process can take up to five business days, depending on the transfer method.

A crucial part of a remittance transaction is the “payment remittance advice,” which records the fund transfer. This advice can be sent via email, known as electronic remittance advice (ERA), or as a hard-copy document that can be scanned into accounting software. 

For businesses making payments to suppliers, remittance advice serves as a summary of the payment details, such as which invoices have been paid and the corresponding amounts. Basic remittance advice typically includes:

• Invoice number
• Invoice Date
• Discounts (where applicable)
• Purchase order (PO) number
• Payment amount and method
• Business name and contact information
• Remittance date and anticipated transaction completion date

However, it’s important to note that payment remittance is not proof of payment. It simply notifies the recipient that a transaction has been initiated.

What Are the Different Types of Payment Remittance?

There are several types of remittance advice that customers can use to inform businesses about payments:

Cheques: Though somewhat outdated, cheques remain a standard method for B2B transactions due to their clear paper trail. However, they can be prone to human error, rejections, and delays, making the process time-consuming and costly.

Credit Card Payments: Credit card payments are secure and convenient but can come with high transaction fees and limits that might be problematic for large B2B transactions.

Electronic Funds Transfer (EFT): EFT, including ACH and wire transfers, is a digital method that offers efficiency, low cost, and speed. It’s becoming increasingly popular due to its automation capabilities.

Automated Clearing House (ACH) Transfer: ACH transfers electronically move funds between bank accounts, similar to cheques but faster. They are ideal for recurring payments or one-time transactions, with the payer’s authorization required for recurring transfers.

Wire Transfers: Wire transfers involve moving money between bank accounts globally through secure networks. They are highly secure and do not have transaction limits, but initiating them can be complex.

What Are the Different Forms in Which Payment Remittances Are Sent?

1. Paper-Based Remittance: This is a hard copy of the remittance advice that includes details such as the invoice number and the amount paid. It can be handwritten or generated by a computer. 

2. Remittance Delivered Via Email: This type of remittance advice is sent through email. The payment details may be included in the body of the email or as an attachment. This method is often used for its convenience and speed.

3. Electronic Document Interchange (EDI) Remittance: This form is commonly used by large enterprises. It involves sending remittance information electronically via EDI systems. The remittance advice in EDI format is typically represented by an alphanumeric code and is used for managing payments in large-scale transactions.

4. Web-Based Remittance: Retail giants like Walmart, Amazon, and Tesco often use web-based remittance advice. Their accounts payable teams upload the remittance details to a dedicated website portal. The supplier’s cash application department can then log in to the portal and download the remittance advice.

Challenges in Payment Remittance

1. Complexity of B2B Transactions: B2B transactions often involve multiple invoices, partial payments, and deductions, making the remittance process complex.
2. Manual Processing: Many businesses still rely on manual processes for cash posting, which are time-consuming and prone to errors.
3. Lack of Standardization: Different customers may use varied formats and methods for remittance advice, leading to inconsistencies and delays in processing.
4. Data Discrepancies: Inaccurate or incomplete remittance information can cause delays in matching payments to invoices, affecting the overall cash application process.

Best Practices for Optimizing Payment Remittance

1. Automate Cash Application: Implementing automated cash application solutions can significantly reduce manual efforts, minimize errors, and speed up the remittance process. These solutions use AI and machine learning algorithms to match payments with invoices accurately.
2. Standardize Remittance Advice: Encourage customers to use standardized formats for remittance advice. Providing templates and guidelines can help ensure consistency and ease of processing.
3. Implement Electronic Payments: Promote the use of electronic payment methods such as ACH and wire transfers. These methods provide more detailed remittance information and faster processing times compared to checks.
4. Centralize Payment Processing: Centralizing payment processing can streamline the remittance process by consolidating all incoming payments into a single system. This reduces the chances of missed or misapplied payments.
5. Regular Reconciliation: Regularly reconcile accounts to identify and resolve discrepancies. This practice helps maintain accurate financial records and prevents long-term issues.

How Peakflo Helps with Payment Remittance?

Managing payment remittance can be a daunting task for finance teams, especially with the need to handle multiple bank accounts and various remittance advice formats. Peakflo offers advanced solutions to streamline this process:

Real-Time Bank Integration: If your finance team is tired of manually importing bank statements from different accounts, Peakflo can help. It integrates with all major banks, syncing all bank transactions in real time, and ensuring your financial records are always up-to-date.

AI-Powered Remittance Extraction: Peakflo’s AI-powered remittance extraction automatically pulls payment details from emails, PDFs, CSV, XLS files, and even checks. It matches the payment using the remittance payment reference number, reducing manual effort and increasing accuracy.

Automatic 3-Way Matching: Instead of manually performing 3-way matching, Peakflo automatically matches the remittance details to the invoice and bank statements, flagging any mismatches for review. This significantly reduces errors and saves time.

Efficient payment remittance is essential for accurate financial records, effective cash flow management, and strong customer relationships in B2B transactions. Peakflo’s Cash Application solution streamlines the remittance process and minimizes manual work. By leveraging Peakflo’s technology, businesses can enhance their financial operations, reduce errors, and focus on strategic growth.