Statements and remittance advices

In our sales process we have now reached the point when the customer has their goods and the supplier has issued them with an invoice, detailing how much they should pay for the goods.  Assuming that either there is no discrepancy, or the discrepancy has already been rectified through a credit note, all that is left is for the customer to pay for the items which they received.

Many times in business customers will have ordered items from a supplier more than once in any given month.  This means that the total amount due from the customer in  a month would be more than just the amount of 1 invoice.  Usually at the end of any particular month, an organisation will send out a statement to all customers who owe them money.

It is normal for customers to only send one payment to a supplier in a month, rather than individual payments for each invoice.  This means that there will usually be more than one invoice outstanding at any one time, so sending statement at the end of each month allows both organisations to ensure that they agree on the amount which is outstanding.  This allows each company to reconcile the amount owing and check that they agree with it.

A statement could look like this.

Statement Business Example

This is company formally telling its customer that they expect to be paid £278.45.

It is not uncommon for a customer to receive a statement and realise that there is items on the system of their supplier which they either do not recognise, or do recognise and have disputed the amounts.  Usually when a customer notices this they will contact the supplier to discuss the differences with them.

When a customer sends a payment to a supplier it is rare that they will be paying all of the invoices which the supplier has outstanding for them.  This could be because some of the invoices are not yet due for payment.  To ensure that the supplier knows exactly what is being paid the customer will usually accompany a payment with a document which states how much is being paid, and what is being paid.  This is known as the remittance advice.

Traditionally a remittance advice would have accompanied a cheque in the post, however with more and more organisation choosing to keep all of their electronically, this can now take the form of an email, or single document sent through the post.

In the example above, if our customer disputes the second invoice, but acknowledges the first and the credit note, then the remittance could look like this.

Remittance Advice Example

By sending this document to the supplier, the supplier is able to clearly know what is being paid, and more importantly, what is not.  This allows them to understand what money is still owed to them.  They choose to ask the customer the reason for not paying the invoice, or they may already know the reason and are preparing the raise a credit note for the amount.

Once an invoice has been fully paid, that is the end of the transaction. To recap the process from the start the flow of documents for a sale is:

Statements & remittance advices - Customer Supplier example