In this article, learn about:
What EDI 820 remittance advice is
Where remittance falls within the supply chain lifecycle
Best practices and common challenges for remittance management
Remittance advice is a foundational but often misunderstood part of supplier financial operations. Unexplained deductions and mismatched invoices can quickly turn accounts receivable into a time-consuming guessing game. Remittance advice plays a critical role in helping suppliers reconcile payments accurately and flows seamlessly with electronic data interchange (EDI).
What Is Remittance Advice?
Also called remittance advice or payment remittance detail, remittance is a document that provides an explanation for a payment received. Sometimes, remittance can refer to the payment itself, and the remittance advice refers to the explanation. However, other times remittance is used interchangeably to refer to both the payment and the explanation.
For suppliers, remittance advice most commonly relates to a paid invoices from a retailer, distributor, or other partner. The document itself includes both the payment method, when it was sent, and includes details like account numbers and any reference numbers that connect the payment with the sale or invoice.
The EDI version of remittance is called EDI 820. This electronic document includes both the payment order information and the remittance advice information, providing suppliers and retailers with all of the payment details in one document. In addition to these details and the payment method, EDI 820 also typically includes payer and payee information, banking information, and details about any relevant adjustments.
EDI 820 typically includes the following information:
Payment method and payment date
Invoice number and payment amount
Payer and payee information and details
Banking information and reference information
Adjustments, such as deductions or chargebacks
Why Is Remittance Advice Important?
Within the larger lifecycle of supply chain management, remittance falls towards the end. It starts with the retailer sending the supplier a purchase order (PO). The supplier then sends the retailer a purchase order acknowledgement and then fulfills the order. Once the order has been delivered to and received by the retailer (or associated partner), the retailer/carrier will send a proof of delivery (POD) to the supplier. Then the supplier will send an invoice to the retailer.
When the retailer pays this invoice, they will include a remittance advice. The remittance advice explains the payment details and any adjustments to the payment, such as deductions or chargebacks. Ultimately, the remittance advice helps link the payment to the corresponding invoice, PO and any other relevant documentation associated with the order.
Remittance Documentation for Deduction Disputing
Deductions can occur on paid invoices for many reasons, most commonly shortages or compliance issues. Suppliers process multiple POs, orders, and shipments daily, so an unspecified deduction on a payment can easily be missed. When a payment includes a remittance advice, it helps the supplier understand exactly which order the deduction is associated with, and why it occurred at all.
In the case of the retailer applying invalid deductions (due to system or other errors), it is imperative for suppliers to have clear, accurate, and easily accessible documentation in order to dispute them. By clearly aligning payments with the correct POs, remittances can make disputing invalid deductions easier for suppliers by eliminating the hassle of manual cross-referencing.
Remittance Advice and EDI
It is important to note that not every retailer will manage remittances the same way. Some remittance documents may include highly detailed information while others may not. Suppliers should strive to maintain an organized system for managing documents in general so as not to rely too heavily on detailed remittances that they may not receive.
Many suppliers opt to use EDI to maintain streamlined documentation across multiple retailers and partners. EDI is a system that manages the flow of communication between suppliers and their partners through the electronic exchange of documents. Third-party EDI providers can help suppliers manage their documentation and organize their systems, allowing suppliers to focus on running their business.
Best Practices for Managing Remittance as a Supplier
Suppliers are not always on the receiving end of a remittance advice but will sometimes be the ones sending them as they work with other partners such as manufacturers, distributors, and carriers.
Some best practices for remittance management for suppliers are:
Maintain a standardized process for all invoice payments. This will help streamline reconciliation.
Set-up portals for partners, where all payments and transactions can occur in one place.
Regularly audit processes to ensure that nothing is getting missed or being sent in error.
Include all relevant details on the remittance advice.
Implement electronic forms of payment, if possible, to allow for speedier processing.
As capability allows, automate the invoice payment and remittance process to help in avoiding errors from manual entry.
Regularly and proactively communicate with partners to ensure that all information is up to date and accurate.
Common Challenges for Managing Remittance as a Supplier
Some common challenges relating to remittance management for suppliers includes:
Invoices and remittance documents with incomplete or erroneous information.
Delays in receipt of the remittance advice.
Lack of standardized processes for sending and receiving remittance advice.
Disorganized documentation across the entire business, resulting in delays and errors.
Remittance advice with minimal information, resulting in confusion and errors.
Using multiple formats for invoicing, remittance, and payment. This creates confusion and is more susceptible to errors.
Accurate remittance advice helps suppliers reconcile invoices, identify deductions, and resolve disputes faster without excess manual work. As supplier networks grow more complex, modernizing remittance management becomes less of an optimization and more of a necessity. Automating remittance through a third-party EDI provider allows suppliers to standardize processes, improve visibility, and reduce errors.
Let SPS Commerce Fulfillment Help
Ready to modernize remittance? SPS Fulfillment automates EDI payments and partner management to help accounting teams save time and improve accuracy.
