What is meant by the term remittance?
During the invoicing process, getting a little more clarity is always constructive for suppliers and customers in the long run. Being a customer, issuing remittance slips helps in assuring that the suppliers can always match the invoice to pay. And being a supplier, getting remittance advice assists you in optimizing the accounts receivable processes. Before we discuss more remittance and remittance advice, let's understand what remittance is.
What is remittance?
As per the literal meaning, the word 'remit' refers to sending back and remittance is basically sending back a sum of money or transferring it to another party. Remittance includes virtually any payment, bills, invoices, and is preferred for overseas payments where one party is based in some other nation. For sending a remittance, you can avail of numerous methods such as as- wire transfer or Automated Clearing House (ACH).
Remittances are usually personal money transfers that are made to family or friends and even business payments. In today's times, there is rapid adoption of remittances and the major factors that drive this increase include:
Migration: Since more and more individuals are living overseas nowadays, so many remittances are made by individuals who live and work abroad to their families.
Businesses connected worldwide: The Internet has made it accessible and simple for businesses to connect and collaborate with customers, suppliers, and employees globally, which results in an increase in overseas remittances to pay for the business invoices.
What is remittance advice?
Remittance advice is a document that is sent by a customer to the seller while informing the seller about the completed invoice payment. Remittance advice is usually sent at the time of the payment and few sellers even add a remittance advice section in the invoice where customers can fill and return. However, sending a remittance advice letter is not compulsory while transferring money; rather, it is just a courtesy and helps in helping suppliers to match a sum of money with invoices and record-keeping.
This further helps in improving the overall communication and builds healthy communication amongst customers and suppliers. Since online payments have gained wide adoption, sending remittance advice slips is becoming less common. However, once an invoice is paid, sending a confirmation email is appreciated at all times.
Types of remittance advice
Remittance advice is majorly available in three different forms that include:
Basic remittance advice: Basic note that states the payment amount and invoice number.
Removable invoice advice: It is a type of invoice which has a removable remittance slip that customers have to fill in.
Scannable remittance advice: Remittance slips which are scannable for electronic records.
How does remittance work?
Remittances operate in the same way as other payments work and both parties must have bank accounts or other sorts of services to transfer money. For processing a remittance, any of the following options can be practiced:
- Online transfer: A normal bank transfer from account to account can be done for remittance and it is one of the simplest ways for initiating payments. But before you do that, you must know the rates of sending money internationally as some of them, like PayPal and the SWIFT system, are quite expensive.
- Cheque or cash: In case the recipient doesn't have a bank account, payment can be made using cash or cheque through services like MoneyGram, Western Union, and so on. These are expensive options where you don't get the best exchange rate.
- Credit, debit, or prepaid card: To make a remittance, you can even go for a credit, debit, or prepaid card.
Irrespective of the method you choose to make a remittance payment, transactions take the standard route for completing the payment cycle. While carrying out a remittance¸, the funds of the remittance amount need to be present in your account. Once the transaction is issued, funds are transmitted to the recipient's bank for processing. When the money is at the bank, the foreign exchange rate and banking fee are applied. After that, the funds are available in the local currency of the recipient.
What to include in a remittance advice slip?
A remittance advice slip comprises important pieces of information that includes:
- Your name and address
- Supplier's name and address
- Method of payment
- Payment amount
- Invoice number
- The date when the remittance is sent and when the payment can be expected to be cleared.
As there are no legal guidelines to be followed to send a remittance advice slip, email is the most preferred method. Prior to sending the mail, make sure that you confirm the supplier's email address so that the payments are made on time and experience no delays on both ends.
Another method is snail mail, which is comparatively slower, so email tends to be a better and fast alternative. If the payment is made through cheque, you can send the remittance advice along with the cheque itself.
Explore the best rates for your transfer!
In case you need to send or get a remittance, ensure that you have a clear idea of the tax implications. It is recommended that you explore the best rate for your transfer because, many times, remittances can cost you higher than you expected.