Glossary
What is a credit memo?
By Tim White · Last updated
A credit memo (or credit note) is a document a seller issues to lower the amount a buyer owes. It is used for returns, overcharges, damaged goods, or an agreed discount after the fact. It does not move money on its own; it offsets an existing or future invoice.
When a credit memo shows up
Say a supplier invoiced you for 100 units but 10 arrived broken. Instead of reissuing the whole invoice, they send a credit memo for the 10, and you pay the difference. Same idea for a billing error or a late discount.
Why it needs care in the books
A credit memo has to be matched to the invoice it corrects, or your records overstate what you owe. Getting the vendor, reference number, and amount right is the whole job.
InvoiceJet extracts those fields with a confidence level and a citation on the document, so the numbers you reconcile a credit against are verified rather than eyeballed.
A worked example
Northwind Supplies invoices you 4,000 dollars for 200 boxes. Twelve arrive crushed, at 20 dollars each, so 240 dollars. Northwind issues a credit memo for 240 that references the original invoice number. You pay 3,760, not the full 4,000. The credit memo moves no cash on its own. It lowers the open balance. Book it against that invoice rather than as a fresh bill, or your payables sit 240 dollars too high.
Common questions
Is a credit memo the same as a refund?
No. A refund returns money. A credit memo reduces what is owed and is usually applied against an invoice, though a supplier may later refund a leftover balance.
What is the difference between a credit memo and a debit note?
A credit memo is issued by the seller to reduce what the buyer owes. A debit note is raised by the buyer to request that same reduction, so the two often describe one adjustment from opposite sides.
How do you apply a credit memo to an invoice?
You match the credit memo to the invoice it corrects by vendor and reference number, then subtract its amount from what you pay. The remaining balance is what settles the invoice.
Sources
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