Payments Efficiency

Electronic Remittance Information: Making the Move Toward Modernization

The momentum of electronic invoicing (Off-site, PDF) is pushing business-to-business (B2B) payments into a new frontier. Yet, the modernization of B2B payments would be incomplete if it did not advance efficiency across other dimensions, including the payment, remittance information and reconciliation.

With notable progress being made in electronic invoicing (e-invoicing), now is the time to catalyze similar innovation with the exchange of payment remittance information. Doing so will help businesses reduce manual processes, lower costs and achieve automated, straight-through processing of payments.

Remittance information in the context of a B2B transaction refers to the reference information that a payor provides a payee to describe what they are paying for. And how payees receive remittance information largely determines whether they can automate their payment posting. For decades, payors made payments by checks and sent remittance information along with the payment. Mainstream adoption of Automated Clearing House (ACH) payments shifted this trend, leading most payors to provide remittance information separate from the payment, via email or web portal. As a result, only a small percentage of payors include remittance information in an addendum within ACH payments.

In today’s B2B electronic payments environment, emails and web portals are the most common methods for delivering remittance information, but retrieving remittance information, matching it to a payment and posting it to an account is still largely a manual process. Electronic remittance information that can be sent and processed without manual intervention is the ultimate goal as it reduces costs and promotes efficiency.

There are good reasons for payors to employ multiple ways of delivering remittance information. However, some payment systems limit the amount of remittance information that can be sent with a payment, while others don’t support receipt of remittance information at all. In addition, some payors don’t have the capability to send remittance within a payment. Therefore, when remittance information can’t be sent with a payment, or is complex or voluminous, sending it separately from a payment is the only option.

So how can the payments industry create an environment wherein payees can automate payment posting even when remittance information is sent separately from the payment? A critical step to achieving this advancement is establishing the ability to send remittance information electronically in a structured format that can be automatically loaded into an accounts receivable system. And the foundation to build this capability exists.

Current messaging standards support the transmission of structured remittance data. ACH payments have used electronic data interchange (EDI) standards for remittance information for many years. ISO 20022 (Off-site), an international messaging standard, provides a structured and data-rich common language that supports remittance information either within or separate from a payment message. These standards and the emergence of ISO 20022 as the future standard for payments globally present a great opportunity to evolve the exchange and processing of remittance information.

Of course, realizing these opportunities requires collaboration among diverse industry stakeholders. In September 2021, the Business Payments Coalition, in collaboration with the Federal Reserve, will launch an industry work group to determine the viability and potential of an exchange framework that would support the U.S. market’s exchange of electronic remittance information across all payment types. This Remittance Delivery Work Group will leverage the talents and expertise from corporates, service providers, payment networks, financial institutions, industry and standards organizations, and other industry stakeholders to, ultimately, publish the results of this assessment.

With the rapid innovation and evolution of instant payments, B2B payments, and data standards, the time is ripe for advancing similarly creative, solutions-oriented approaches to efficiently deliver and accept electronic remittance information for B2B payments.

To help pioneer this change and stay abreast of progress, join the FedPayments Improvement Community (select “E-invoicing” and “Electronic Payments and Remittance” under the interest preferences), and follow FedPayments Improvement on LinkedIn (Off-site) and Twitter (Off-site).