The Payment Arrived. Now What Is It For?
A customer pays £14,300 into your bank account. The bank statement says "BROOKFIELD INT" and nothing else. You have three unpaid invoices for that customer and a credit note you issued last month, and none of them add up to £14,300. So which invoices has the customer paid, and what has happened to the rest?
That gap between money arriving and knowing what it is for is exactly what a remittance advice fills. It is a short, unglamorous document, and plenty of small businesses never send one. In our experience it is also behind a surprising number of messy sales ledgers, unnecessary chasing calls and disputes that surface months later than they should.
This guide covers what a remittance advice is, who sends it, what it should say, how it differs from the other paperwork in a sale, and why you should treat any unexpected "remittance advice" email with suspicion.
What Is a Remittance Advice?
A remittance advice is a note sent by a customer to a supplier to say that a payment has been made, or is about to be made, and which invoices it covers. "Remittance" simply means money sent to someone. The "advice" part is old commercial language for a notification.
It travels in the opposite direction to most business paperwork. You send your customer an invoice asking to be paid. Your customer sends you a remittance advice telling you they have paid, and how the payment breaks down.
A remittance advice is not a legal requirement in the UK. No law says a customer must send one, and HMRC does not ask for them. It is a courtesy and a practical tool, and larger companies usually send them automatically from their accounts payable system every time they run a payment batch.
You will see it in a few forms:
- An email or PDF generated by accounting software when a bill is paid. Xero, QuickBooks and Sage can all do this.
- A tear-off slip at the bottom of a paper invoice that the customer returns with a cheque. Less common now, but utility companies and some trade suppliers still use them.
- A letter or schedule listing many invoices, typical when a large customer pays dozens of invoices in one transfer.
- The bank reference itself. For a simple payment of one invoice, a good reference on the bank transfer does the same job.
Remittance Advice Meaning in Plain English
If someone hands you a remittance advice, it is saying: "We have paid you this amount, on this date, by this method, and here is the list of invoices it settles, plus anything we have deducted and why."
That last part is where its value lies. A payment that matches a single invoice to the penny needs no explanation. A payment that covers several invoices, takes off a credit note, or holds back money for a dispute is close to meaningless without one.
What Should a Remittance Advice Include?
There is no fixed format. A useful remittance advice normally shows:
- The payer's name and their supplier or account reference for you.
- The date of the payment and the payment method (Faster Payment, Bacs, CHAPS, cheque, card).
- The total amount paid.
- Each invoice being paid, with the invoice number, invoice date and amount.
- Any credit notes taken off, with their numbers.
- Any other deductions, such as a disputed amount, early settlement discount or retention, with a short reason.
- A contact name for queries.
If you pay subcontractors under the Construction Industry Scheme, the deduction of tax also needs to be shown. In that case you must give the subcontractor a CIS payment and deduction statement within 14 days of the end of each tax month, which in practice means by the 19th. Many contractors combine that statement with the remittance advice so the subcontractor gets one document.
A Worked Example
Kestrel Signs Ltd is a sign maker in Enfield. One of its customers, Brookfield Interiors Ltd, owes it three invoices, all including VAT:
| Document | Amount |
|---|---|
| INV-1041 | £4,800 |
| INV-1047 | £6,240 |
| INV-1052 | £3,960 |
| Credit note CN-0089 (damaged panel) | (£480) |
| Net owed | £14,520 |
Brookfield pays £14,300. That is £220 short of what Kestrel thinks it is owed.
Without a remittance advice, Kestrel's bookkeeper has to guess. The two older invoices add up to £11,040, which leaves £3,260 against INV-1052. Is that a part payment, a mistake, or a deduction? Nobody knows, so the money is either left unallocated or applied to the oldest invoices first. The £220 sits quietly on the ledger until someone sends a statement of account two months later, and only then does Brookfield explain that it disputed a delivery charge on the final job.
With a remittance advice, the picture is clear on the day the money arrives:
| Item | Amount |
|---|---|
| INV-1041 paid in full | £4,800 |
| INV-1047 paid in full | £6,240 |
| INV-1052 paid less disputed delivery charge | £3,740 |
| Less credit note CN-0089 | (£480) |
| Total paid | £14,300 |
Kestrel can allocate the cash correctly, close two invoices, and pick up the phone about the £220 that week, while everyone still remembers the job.
There is a VAT point here too. A deduction by the customer is not a credit note. Unless Kestrel agrees the charge was wrong and issues a credit note, it has still accounted for output VAT on the full £3,960. If the £220 is never paid, Kestrel can claim VAT bad debt relief once the debt is more than six months past its due date and has been written off in its books. If it agrees with Brookfield, a credit note fixes both the ledger and the VAT straight away. Either way, the remittance advice is what flags the issue early enough to deal with it properly.
Remittance Advice vs Receipt vs Invoice vs Statement
These four documents get muddled because they all mention the same amounts. The difference is who sends them and what they prove.
| Document | Sent by | Sent to | What it says |
|---|---|---|---|
| Invoice | Supplier | Customer | You owe us this amount |
| Remittance advice | Customer | Supplier | We have paid you, and this is what it covers |
| Receipt | Supplier | Customer | We have received your payment |
| Statement of account | Supplier | Customer | Here is everything invoiced, paid and still outstanding |
The receipt and the remittance advice are often confused. A remittance advice comes from the person paying. A receipt comes from the person who was paid. One is a claim that money has gone out, the other is confirmation that it has come in.
Is a Remittance Advice Proof of Payment?
No, and this catches people out. A remittance advice tells you that a customer has paid or intends to pay. It does not prove the money has arrived.
Many businesses send remittance advices when they authorise a payment run, not when the money lands. A Bacs payment usually takes three working days to clear, so a remittance advice can arrive in your inbox days before the cash reaches your bank. Payments also get rejected, recalled or sent to the wrong account.
Our rule for clients is simple. Never mark an invoice as paid, release goods, or tell a customer they are up to date because of a remittance advice alone. Mark it paid when the money shows on your bank feed and you have matched it as part of your bank reconciliation. The remittance advice tells you how to match it. The bank statement tells you it is real.
If a customer is relying on it as proof that they have paid you, for example in a dispute, the bank's payment confirmation is what counts, not the remittance advice.
When Should You Send a Remittance Advice?
You do not need one for every payment. Here is how we approach it with clients.
No remittance needed: you are paying one invoice, in full, and you put the invoice number in the bank reference.
Send one: you are paying more than one invoice in a single transfer, taking off a credit note, paying part of an invoice, holding back a disputed amount, deducting CIS or retention, or paying a large supplier whose credit control team allocates hundreds of payments a week.
The last point is worth stressing. Large suppliers often put accounts on hold when payments cannot be allocated. A missing remittance advice can lead to a "your account is overdue" call about invoices you have already paid, and in the worst case a stopped delivery.
Use the bank reference properly
UK Faster Payments allow a payment reference of up to 18 characters. That is enough to do a lot of work if you use it well. "INV1041 1047 1052" is 17 characters and tells the supplier exactly what you have paid. Your company name is already shown to the recipient in most cases, so you rarely need to spend the reference on it.
Bacs references are similar in length. CHAPS payments allow more detail. If you cannot fit everything in, put the invoice numbers in the reference and send a remittance advice for the rest.
Remittance Advice for Suppliers: What to Do When One Arrives
If you are on the receiving end:
- File it with the customer's account, not just in your inbox. HMRC expects businesses to keep records that support their accounts, for six years for a limited company.
- Wait for the cash to show on your bank feed before marking anything as paid.
- Allocate the payment to the invoices listed, and apply any credit notes the customer has taken.
- Query any deduction you did not agree to the same week. A short payment that is not challenged quickly tends to become a write-off.
- Check whether any payment is late. Under the Late Payment of Commercial Debts (Interest) Act 1998, a business that pays another business late can be charged statutory interest at 8% above the Bank of England base rate, plus fixed compensation of £40, £70 or £100 depending on the size of the debt. Most small businesses never claim it, but knowing your rights helps when a customer is consistently slow. Our guide to debtor days shows how to measure how long customers are really taking.
Fake Remittance Advice Emails
This is the section we would most like small business owners to read.
"Remittance advice" is one of the most common subject lines in phishing emails sent to UK businesses. It works because finance staff expect remittance advices, they often come from addresses they do not recognise, and they usually contain an attachment. Opening it feels routine.
The fake versions usually:
- Come from a customer you do not have, or a known customer's name with an odd email address.
- Contain an HTML attachment, a zipped file, or a link to "view remittance" on a file sharing site.
- Lead to a page asking you to log in to Microsoft 365, Google or your bank to see the document.
- Show a payment amount that does not match anything on your ledger.
A genuine remittance advice from a real customer is almost always a PDF, an email body with a table, or a notification from a known accounting platform, and it refers to invoices you can find in your own system. If you cannot match the invoice numbers, do not open the attachment. Check the customer's account in your accounting software, or contact them on a number you already have.
A related scam targets the other direction. A fraudster pretends to be one of your suppliers and asks you to update their bank details before your next payment. That is payment diversion fraud, sometimes called invoice redirection fraud. Always confirm new bank details by phone on a number you already hold, never one given in the email. Use the Confirmation of Payee check when your bank offers it, and treat a "no match" result as a reason to stop. Since October 2024, victims of authorised push payment fraud who are consumers, micro-enterprises or small charities can usually claim reimbursement from their bank up to £85,000, but the process is slow and a business is far better off never sending the money.
The NCSC publishes free guidance for small businesses on spotting phishing emails, linked in the sources below.
Remittance Advice and Self-Billing
Some customers, particularly in haulage, construction and agriculture, use self-billing. Under a self-billing arrangement the customer raises the invoice on the supplier's behalf, under an agreement approved for VAT purposes. In that case the self-billed invoice and the remittance advice are often the same document.
If you are a supplier in a self-billing arrangement, you must not issue your own VAT invoice for the same supply, and you should keep the self-billed invoices as your VAT records. HMRC's VAT Notice 700/62 sets out the rules.
Our View
We think remittance advices are undervalued by small businesses on both sides.
As a customer, sending one costs nothing. Most accounting software does it automatically when you mark a bill as paid, and it protects your relationship with suppliers who would otherwise chase you for invoices you have already settled.
As a supplier, a remittance advice is the earliest warning you get of a dispute. A short payment explained on the day it happens is a ten minute conversation. The same short payment found at year end is a write-off, a lost VAT adjustment and an awkward call with a customer who has moved on.
And as a business with an email inbox, it is the document fraudsters are most likely to fake. Treat every unexpected one with suspicion.
How IAK Can Help
We work with small businesses, limited companies and construction companies across North London and Hertfordshire. Getting payments allocated to the right invoices is a core part of keeping trade receivables and trade payables accurate.
Our bookkeeping service handles payment allocation, bank reconciliation and supplier statement checks each month. If you use Xero, our Xero team can set up branded remittance advice templates and automatic sending from batch payments, so your suppliers know what you have paid without you lifting a finger. If you want a cleaner sales ledger, get in touch.
Sources
- Late commercial payments: charging interest and debt recovery, GOV.UK, for statutory interest and fixed compensation amounts.
- What to do if you're a contractor: Construction Industry Scheme, GOV.UK, on payment and deduction statements for subcontractors.
- Self-billing (VAT Notice 700/62), GOV.UK, for the rules on self-billed invoices.
- Relief from VAT on bad debts (VAT Notice 700/18), GOV.UK, for the six month condition.
- Phishing: spot and report scam emails, NCSC, for small business guidance on fake emails.
- APP scams reimbursement, Payment Systems Regulator, on the reimbursement rules that started on 7 October 2024.