Remittance advice
A remittance advice is a document sent by a buyer to a supplier confirming that a payment has been made, specifying which invoices the payment covers and in what amounts — allowing the supplier to allocate the cash correctly against their outstanding receivables.
A remittance advice travels with, or just ahead of, a payment. It tells the recipient which invoices the money is settling. For example, a customer might send a single BACS payment of £3,750 and attach a remittance advice showing it covers invoice #1042 (£2,000), invoice #1051 (£1,500), and a partial payment of £250 against invoice #1060. Without that breakdown, the supplier sees one lump sum land in their bank account and must work out the allocation themselves.
Why it matters for Xero reconciliation
When a remittance advice arrives, the task is to match the bank statement line to the exact combination of invoices the payer has specified. In Xero you apply the payment against each invoice in turn; the amounts must add up to the bank line to the penny or the reconciliation will not clear. Mismatches — where the remittance and the actual bank transfer differ — are common when a customer deducts a credit note or a disputed amount without telling you, leaving a short payment that must be investigated before the line can close.
Keeping the remittance means month-end aged debtors accurately reflects what is genuinely outstanding rather than what has been paid but not yet allocated. Unmatched lumps in a suspense account are a reliable sign that remittances have arrived but not been processed.