Defining Remittance Letters

What Is a Remittance Letter?

A remittance letter is a document sent by a customer, which is often a financial institution or another type of firm, to a creditor or supplier along with payment to briefly explain what the payment is for so that the customer's account will be credited properly.

A remittance letter can also be referred to as a remittance copy of the invoice since it typically contains much of the same information as an invoice, such as the customer's account number and invoice number. Remittance letters may also be used when the customer does not have a fully established account with the company or supplier.

Understanding Remittance Letters

Remittances are payments sent from one party to another, usually from a customer to a seller or supplier. Remittances can be sent via electronic payment, wire transfer, or a check. Although remittances are used in business, they also refer to payments made by family members sent to the person's home country.

A remittance letter is sent to a supplier to inform them of the payment being made by the customer. Typically, a check is enclosed with the letter. However, a remittance letter could also be sent by itself–or without a check–informing the company that a payment was made via another method, such as a wire transfer. The remittance letter is merely a notification from the customer making the payment to the supplier or company that the invoice or balance owed has been paid.

However, a remittance letter is not proof of payment, nor does it prove that the enclosed check cleared properly through the customer's bank. In other words, the letter doesn't prove that there were enough funds in the customer's bank account to pay the balance. The remittance letter is sent by the customer so that the payment can be processed properly and the invoice marked as paid.

Customers might use a remittance letter in situations when there is no accompanying invoice or bill. If there was an invoice, customers should enclose a copy of the invoice or include the information from the invoice in the remittance letter. The customer should also include any other specific information they feel would be helpful to the supplier or vendor in crediting the payment appropriately.

The remittance letter typically contains the following pieces of information:

Remittance Slip

Typically, a remittance letter isn't needed if the bill contains a remittance slip, which is a perforated portion of the bill that can be torn off and sent with the customer's payment.

The remittance slip helps the supplier process the payment more efficiently since the balance owed by the customer can be matched with the enclosed payment. As a result, the balance owed by the customer can be cleared or marked as paid.

The remittance slip, like a remittance letter, helps to ensure that the customer's account is credited properly and the supplier or creditor keeps their books accurate.