Remittance Advice Law and Legal Definition

Remittance advice is a letter sent by a customer to supplier that a sum of money has been spent for goods or services. If the customer is paying by cheque, then the cheque will be attached with the remittance advice. Remittance advice often serves as a record of cash initially received. The remittance advice will carry the invoice number for which payment is tendered. Remittance advices are not compulsory; however they are seen as a complimentary because they help the supplier's accounts-receivable department to match invoices with payments. Companies processing a purchase or a filed claim frequently use remittance advises. The practice of using remittance advice notations to direct the application of payments to specific invoices, if outside the ordinary course of business, allows an impending bankruptcy debtor to give preferential prepetition treatment to certain creditors by disproportionately satisfying those creditors' debts. For example, the debtor could pay unusually large or late debts or pay an invoice that has not yet come due. By doing so, the debtor favors one creditor over another in the last days before all creditors become subject to the priority treatment rules of the Bankruptcy Code and the pro rata distribution of the estate.