A remittance is any form of payment completed between two parties for goods or services received.
It is a broad term that can refer to many forms of payment.
In accounting terms, remittance generally refers to any transfer of payment which completes a business transaction.
For example, if one business purchases supplies from another business, payment made for the supplies completes the transaction and is considered a remittance.
By itself, remittance does not tell the receiving business anything about the payee.
That is why a remittance is often accompanied by a separate document, referred to as a remittance letter or a remittance slip, with details about the transaction and the customer.
Historically, remittance was made in one of two ways—by cash or check. While these traditional methods are still widely used, with the aid of technology, remittance can now be made electronically.
Remittances are sometimes referred to as either an outward remittance or an inward remittance. An outward remittance is payment made from an account. An inward remittance is a payment that is received.
To make an electronic remittance or one by check, the payee must have sufficient funds in the account from which the payment will be drawn. The bank will withdraw the funds and transmit them to the account of the payee.
In the case of a cash remittance, the payor will deposit cash in the account of the payee.
Cash is often used in foreign remittance, when a worker abroad transfers funds to family in their home country. In this case, the worker will deposit cash with a service that will then transfer the funds to an account in the family member’s name.
Remittances can be processed by:
Bank remittance
Cash
Check
ACH (Automated Clearinghouse)
Wire transfer
Remittance letters or remittance slips contain important information about the customer which are not conveyed by the payment itself. This typically reflects the same information that is provided by an invoice.
A copy of the invoice could be included with the payment instead. In some cases, an invoice or bill will contain a slip with this vital information that the customer can tear off and include with a check payment. Typically, a remittance letter will contain the following:
The date of the remittance
The customer's name
The customer's address
Information about the seller or payee, including a name and address
A number for the account to which the payment will be applied
A balance due or an invoice amount
The due date
The invoice number
The method of payment
Bank remittance and bank transfers are two ways to exchange funds that are sometimes hard to distinguish.
A bank remittance refers to funds sent from the customer’s bank account to the corresponding bank account for the payee or recipient
A bank transfer describes funds that are transferred between two different accounts typically owned by the same person or business