Legal Definitions - remittance advice

A remittance advice is a document sent by a party making a payment (the payer) to the party receiving the payment (the payee). Its purpose is to explain the details of the payment, specifying exactly what the money is for. This allows the recipient to accurately record the incoming funds and reconcile them against their outstanding invoices or accounts.

Here are a few examples to illustrate this concept:

• Business-to-Business Payment: Imagine "Tech Solutions Inc." owes "Office Supplies Co." for several recent orders of office equipment. When Tech Solutions Inc. sends a payment, they include a remittance advice. This document lists the specific invoice numbers (e.g., Invoice #2023-001 for computers, Invoice #2023-005 for printers), the original amounts, any discounts applied, and the net amount being paid for each. This detailed breakdown helps Office Supplies Co. quickly identify which outstanding invoices are being settled by the payment, ensuring their accounting records are updated accurately.

• Customer Utility Bill Payment: When a homeowner, Ms. Chen, pays her monthly electricity bill to "City Power & Light," she might send a check along with a portion of her bill statement. This statement section, often designed to be torn off and returned, contains her account number, the billing period, and the amount due. By returning this with her payment, Ms. Chen is providing a form of remittance advice. It tells City Power & Light exactly which account and billing cycle her payment should be applied to, preventing any confusion or misapplication of funds.

• Insurance Claim Payout: After Mr. Davies files a claim with his car insurance company, "SafeDrive Insurance," for repairs following a minor accident, SafeDrive Insurance approves the claim and sends a payment to the repair shop, "AutoFix Garage." Accompanying the payment, SafeDrive Insurance sends a remittance advice. This document specifies Mr. Davies's policy number, the claim number, the date of the accident, and a detailed breakdown of the approved repair costs being covered by the payment. This ensures AutoFix Garage knows precisely which claim the payment relates to and what expenses it covers, allowing them to close out the repair order correctly.