Why Did I Get a Remittance Advice Check?

Receiving a check that includes “remittance advice” can be confusing. This document is an explanation that accompanies a payment, detailing why it was made and what it covers. Understanding this process can provide clarity and ensure proper handling of your funds.

Understanding Remittance Advice

A remittance advice is a document that provides a detailed explanation accompanying a payment. It serves as a notice from the payer to the payee, clarifying the purpose of the funds being transferred. This document is distinct from the payment itself, whether it’s a paper check or an electronic transfer. It functions as a communication tool to ensure both parties have clear records of the transaction.

The advice often includes specifics such as the invoice number or reference numbers, the date of payment, and the total amount paid. It also details any deductions, adjustments, or discounts applied to the original amount. Information like the names and contact details of both the payer and payee are present, along with the payment method used. This comprehensive information helps the recipient accurately reconcile the payment with their records, particularly for businesses managing multiple invoices.

Common Reasons for Receiving a Remittance Advice Check

You might receive a remittance advice check for various reasons. This document helps explain the nature of the payment, which can range from insurance payouts to payroll adjustments.

Insurance Payouts

Insurance companies frequently issue remittance advice checks when settling claims for auto, health, home, or life insurance policies. For health insurance, an Electronic Remittance Advice (ERA) or paper Remittance Advice (RA) details how a medical claim was processed, including the services covered, the amount paid, and any adjustments for deductibles or co-pays. For property or auto claims, the advice will specify the damaged items, the assessed value of the loss, and any depreciation or deductible amounts withheld from the total settlement. This detailed explanation helps policyholders understand the final payout.

Refunds

Remittance advice accompanies refunds, indicating an overpayment or a return of funds. This could include a refund for an overpaid utility bill, a deposit being returned, or a reimbursement for a product return. For tax refunds, a basic explanation might accompany it if sent via mail, clarifying it’s due to overpaid taxes or refundable tax credits like the Earned Income Tax Credit.

Vendor or Supplier Payments

Small businesses, freelancers, or contractors often receive remittance advice checks for goods or services they have provided. The advice lists the specific invoice numbers being paid, the amounts applied to each, and any discounts taken by the payer. This helps the vendor accurately match the payment to their outstanding invoices in their accounts receivable system. These documents are important for proper accounting and reconciliation of client accounts.

Government Disbursements

Government entities may issue remittance advice checks for various programs or reimbursements. Payments could include grants, subsidies, or payments from specific government assistance programs. The advice clarifies the program name, the period covered, and any calculations or deductions made. These disbursements ensure transparency in public funds distribution.

Payroll Adjustments or Final Paychecks

When employment ends, a final paycheck includes a remittance advice explaining the components of the payment. This can detail regular wages, accrued but unused paid time off (PTO) payouts, bonuses, commissions, and any deductions for benefits or taxes. The advice helps the former employee understand the full breakdown of their final earnings.

Legal Settlements

Payments resulting from a lawsuit, insurance claim, or other legal disputes are accompanied by a remittance advice. This document outlines the settlement amount, specifies any legal fees or expenses deducted, and details the net amount payable to the recipient. It may also distinguish between taxable and non-taxable portions of the settlement, which is important for tax reporting purposes.

What to Do After Receiving a Remittance Advice Check

Receiving a remittance advice check requires attention to ensure accuracy and proper record-keeping.

Begin by comparing the amount on the check with the total amount indicated on the remittance advice. Review the detailed breakdown on the advice, cross-referencing invoice numbers, service dates, or claim numbers against your records. This verification step helps confirm that the payment matches what you expected and covers the intended items.

Once verified, retain the remittance advice document for your personal or business records. For individuals, this is important for tax purposes or proof of payment for services received. For businesses, it is a document for accounts receivable reconciliation, allowing you to accurately apply the payment to outstanding invoices and update your financial ledgers.

Deposit the check into your bank account promptly. Electronic fund transfers (EFTs) associated with remittance advice typically deposit funds directly into your account, but the advice still serves as your record.

If you identify discrepancies or have questions about specific deductions or line items, contact the sender immediately. Referencing the specific details on the remittance advice, such as invoice numbers or claim IDs, will facilitate a quicker resolution. Maintain a record of your communication, including dates, times, and the names of individuals you spoke with.

Important Considerations

When handling a remittance advice check, these considerations can help safeguard your finances and ensure compliance.

Some payments received via remittance advice may have tax implications. For example, certain legal settlements or income from services rendered are taxable income. Consult a qualified tax professional or refer to IRS publications to determine if the payment is subject to federal or state income taxes.

Exercise caution with unexpected checks or remittance advice documents. Verify the legitimacy of the sender, especially if the payment is unsolicited or appears suspicious, to prevent potential fraud. Legitimate senders will have verifiable contact information and a clear reason for the payment.

For businesses, these documents are important for accurate accounting and reconciliation. They support the proper recording of revenue, tracking outstanding balances, and maintenance of transparent financial records. Proper handling of remittance advice streamlines financial operations and aids in audits.