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Remittance Advice

A document sent by a payer to a payee specifying which invoices a payment covers, facilitating accurate cash application.

Invoicing & ARAP Automation

FAQs

What is EDI 820 and how is it used for remittance?

EDI 820 is a standard electronic document format (Payment Order/Remittance Advice) used in Electronic Data Interchange systems to transmit detailed remittance information between trading partners. Large retailers, manufacturers, and government entities often require their suppliers to exchange remittance data via EDI, enabling automated cash application without any manual matching.

What should be included in a remittance advice?

A complete remittance advice should include: payer name and account number, payment date and amount, payment method (check number, ACH trace number), and for each invoice: invoice number, invoice date, original invoice amount, discount taken (if any), and net amount applied. The more detail provided, the faster and more accurately the supplier can apply the payment.

What is deduction management in accounts receivable?

Deduction management handles the process when a customer pays less than the invoiced amount — taking unauthorized deductions for claimed discounts, damaged goods, pricing disputes, or promotional allowances. High deduction rates are common in consumer goods companies selling to large retailers. Efficient deduction management requires systematic research, approval workflows, and credit memo issuance to resolve disputes quickly.

Related Terms

Accounts Receivable

Amounts owed to a business by customers for goods or services delivered but not yet paid for.

Lockbox

A bank service that collects and processes customer check payments sent to a dedicated PO box, accelerating cash application and reducing float.

ACH Transfer

An electronic bank-to-bank transfer processed through the Automated Clearing House network, used for payroll, bill payments, and business transactions.

Accounts Payable

Short-term liabilities representing amounts a business owes to suppliers and vendors for goods or services received but not yet paid.

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Remittance advice is a document provided by a payer (buyer) to a payee (supplier) accompanying or preceding a payment, specifying exactly which invoices the payment is intended to settle, the amounts applied to each invoice, and any discounts taken or deductions made. It is the communication link between a payment transaction and the underlying invoice obligations it satisfies.

Remittance advice is essential for cash application — the process by which a supplier's AR team matches incoming payments to open invoices. Without remittance information, a lump sum payment must be manually researched and matched, increasing processing time and error rates. With complete remittance data, many payments can be automatically applied.

Remittance advice can be delivered in several formats: as a paper document mailed with a check (traditional), as an email accompanying an ACH payment or wire, as an EDI 820 transaction (in electronic data interchange trading partner relationships), or embedded in the payment transaction data (increasingly common in modern payment platforms).

A key challenge in B2B payments is 'remittance detachment' — the payment arrives in the bank account but the remittance information arrives separately (or not at all), requiring manual research. Payment networks and AP automation tools are addressing this by bundling remittance data directly into ACH transactions through standard addenda records or through API-based payment notifications.

For suppliers, improving remittance capture — ensuring every incoming payment has associated invoice-level detail — is one of the highest-ROI opportunities in AR automation. Even small improvements in straight-through-processing rates (the percentage of payments applied without human touch) can save significant labor and reduce DSO.