The global B2B payments market is set to skyrocket. Juniper Research predicts it will hit $111 trillion by 2027, a big jump from $88 trillion in 2022. With all that money flying around, it's time for business owners to brush up on their payment terms. Concepts like remittance and remittance advice might seem dry, but they're crucial for any business to understand.
These are key players in the order-to-cash process, playing significant roles in streamlining financial operations and maintaining healthy cash flow.
In this article, we'll define them, explore why they matter, and discuss how tools like Chaser can help businesses unlock their benefits.
Table of Contents
1. Introduction
2. What is remittance?
3. Types of remittances
4. What is remittance advice?
5. Importance of remittance advice in B2B transactions
6. Benefits of using remittance advice
7. How Chaser can optimize the remittance process
8. Conclusion
9. FAQ
What is remittance?
Before we go any further, we should define what we mean by remittance. At its simplest, a remittance represents transferring funds from one party to another. This typically serves the purpose of paying an outstanding invoice or settling a debt obligation.
For a deeper examination of remittance specifically within B2B scenarios, read this article "What does remit payment mean in B2B invoice payments?" But in brief, here are some common examples:
- A manufacturer remits payment to a parts supplier to fulfill an overdue invoice
- An individual settles their credit card balance by remitting money back to the card issue
- A business shifts money between internal departments by remitting transfers
Remittance plays a big role in something called the order-to-cash, or O2C, process. It sounds fancy, but it's just a term for all the steps a business goes through, from taking an order to getting paid.
Types of remittances
As you evaluate remittance procedures, it helps to understand the different formats:
Domestic remittances
These occur within the same country. For example, if a company in New York pays a supplier in California, that's a domestic remittance. The money stays between United States borders during domestic transfers.
International remittances
As the name suggests, this is when money crosses borders. When payments cross country borders, we categorize them as international remittances. Consider a European fashion brand remitting payments to its manufacturing partners in Vietnam. The global movement defines them.
Electronic remittances
Any digital money transfers between bank accounts or online payment platforms fall into this bucket. When you use online banking or payment platforms to send money, that's an electronic remittance. It's the digital way of moving cash around.
It's also quickly becoming the most popular. In 2022, 64% of all B2B companies made more than half of their B2B payments electronically. These payments are preferred thanks to the speed, lower costs, and convenience they bring.
Traditional remittances
This is the old-school way of sending money – think mailing paper checks or money orders to pay invoices. While these approaches are fading as digital transfers take over, some businesses still rely on them.
What is remittance advice?
When a customer remits payment to settle your outstanding invoice, getting documentation from them outlining the transaction details is vital for your accounting records. We call this documentation "remittance advice."
Remittance advice refers to proof of payment sent by a customer to a supplier specifying pertinent details about the payment. It usually includes all sorts of helpful info about the payment:
- How much was paid
- When it was paid
- Which invoices or transactions it's for (expressed with an invoice number)
You'll encounter remittance advice in various formats. There's the traditional paper documents, email notifications, and electronic data interchange (EDI). But no matter the format, it serves an invaluable record-keeping purpose.
Importance of remittance advice in B2B transactions
Providing remittance advice alongside B2B invoice payments smooths several financial management processes.
Ensuring payment accuracy
Most importantly, remittance advice lets you accurately match funds received to open invoices in your accounting system. It helps ensure payments go to the right place, preventing potentially disastrous misallocations down the road.
With clear documentation from the customer, you can easily connect payments to the correct outstanding invoices they relate to. It's much cleaner than trying to reconcile multiple payments with no attached documentation.
Resolving payment disputes
Have you ever had a client insist they already paid an invoice your system shows as still unpaid? Sometimes, disagreements about payments pop up. It happens to the best of us but remains beyond frustrating for both parties.
Detailed remittance advice can nip these disputes in the bud. If there's a question about a payment, both sides can look at the remittance advice to see what's what.
Providing clear proof of exactly what payments were made and when confusion gets minimized. Any discrepancies can also be addressed rapidly by cross-checking against the remittance advice. In short, it allows companies to maintain positive relationships.
Enhancing communication
Finally, remittance advice helps businesses talk to each other better regarding payments. It enables smoother communication around transactions themselves between your business and customers.
The paying party can specify exactly which invoices are covered within the remittance. In turn, the recipient (you) can seamlessly enter the payment into your accounting records. There's no need to chase down clarification.
This alignment around details prevents confusion and creates more efficient interactions during the order-to-cash process.
Benefits of remittance advice
Are you sold on integrating remittance advice yet? Here are some of the major perks it offers:
Maintaining accurate financial records
Proper financial management relies on having meticulous records of customer payments. Without clear documentation, mistakes can happen when logging invoices as paid in your accounting system.
Remittance advice acts as proof of payments made, covering all the details like amount, date, and invoices. This makes reconciling your books painless. You can clearly match funds received to specific open invoices or transactions.
With remittance advice, your system reflects reality. You'll have an accurate picture of cash flow based on a reliable paper trail of payments. It's much cleaner than trying to decode vague payments with no attached documentation. Overall, remittance advice is invaluable for accurate records.
Speeding up payment processing
When customer payments come in without remittance advice, processing slows to a crawl. Your accounting team must manually chase down specifics like which invoices are being paid before they can log anything.
With a remittance advice document, all these details are clearly laid out upfront. Your staff doesn't waste time decoding vague payments - they can instantly apply funds to the correct invoices.
This acceleration in payment posting leads to faster cash flow for your business. The lag caused by unclear payments disappears when all the data is available via remittance advice.
As a result, funds apply faster, improving cash flow management for both parties and avoiding lags.
Building trust between business partners
Using remittance advice is also a great way to build trust. It shows you're being open and honest about your payments. When you furnish detailed documentation, it builds trust on both ends of transactions.
This nurtures healthier long-term business relationships and paves the way for seamless future dealings.
Lightening administrative workload
Last but not least, remittance advice can make life easier for the people handling the payments. Processing payments without attached remittance advice requires extensive manual follow-up to allocate them appropriately. This entire administrative burden is lightened when comprehensive upfront details are provided.
In turn, your accounts receivable team saves countless hours trying to decode vague payments. Less time wasted chasing ambiguities means your team can focus on more value-driving tasks. The risk of errors also goes down since remittance advice clearly outlines where payments should be applied. It lightens workload and boosts productivity.
How Chaser optimizes remittance
Managing remittances and associated remittance advice through manual methods sounds tedious. The solution is to lean on technology like Chaser to automate busy work. As an accounts receivable management platform, Chaser can optimize your entire remittance workflow.
A major strength lies in automating the "chasing" process many business people are all too familiar with. The software facilitates better communication and follow-ups on outstanding payments. Customers with overdue invoices receive automated, personalized payment reminder emails. These clear notifications reduce confusion about expected payment timelines.
Chaser also excels at integrating with popular accounting platforms. It enables straightforward payment tracking by syncing remittance data directly into accounting software like QuickBooks, Xero or Sage. Funds received are automatically matched to open invoices for mistake-proof recording.
With end-to-end remittance workflow automation, Chaser allows businesses to realize new productivity levels and financial control.
Conclusion
If one thing's clear from this article, it's that remittance and remittance advice serve as the yin and yang of healthy B2B financial operations. They ensure payments get allocated accurately and provide much-needed transparency into cash flow management.
Understanding these concepts marks a crucial step for any business seeking to enhance their processes. When leveraged properly, remittance and advice unlock timely, predictable payments, simplified accounting, and boosted productivity.
The even better news? Solutions like Chaser make achieving these benefits a breeze by removing manual busywork. With automated reminders, accounting integrations, and real-time payment tracking, Chaser gives businesses back their most precious asset – time.
Just imagine – accurate business finance records, instant payment syncing, frictionless customer communication, and administrative burdens fading away. A new era of accounts receivable and cash flow efficiency awaits!
To learn more about joining the future of intelligent receivables management with Chaser, request a personalized demo today.
FAQ
Q: What is the difference between remittance and remittance advice?
A: Remittance refers simply to the transfer of funds itself. Remittance advice is separate documentation the paying customer provides with details like the amount paid, date, invoices covered, etc. Think of it like a receipt for the payment.
Q: Why should businesses care about remittance advice?
A: Proper remittance advice enables accurate financial reporting, speeds up payment applications, resolves disputes, and reduces admin work. It provides critical clarity in the billing process.
Q: How can software like Chaser enhance remittance advice processes?
A: Chaser fully automates the delivery of remittance advice, integrating with accounting systems for seamless payment syncing. It also provides payment tracking and cash flow management updates as advice documents are received.
Q: What are some key types of remittance transfers?
A: Domestic, international, electronic (wire, ACH, etc), and traditional (paper checks/money orders) are major categories with distinct traits businesses should understand.
Q: What benefits does good remittance advice offer?
A: Done right, it leads to mistake-proof financial records, faster invoice management, strengthened trust with trade partners, and massive administrative burden reduction.
