What is a credit memo?
By Tim White · Glossary · Last updated
A credit memo, also called a credit note, is a document a seller issues to reduce what a buyer owes. Common reasons are returns, damaged goods, overcharges and discounts agreed after billing. It moves no money by itself. It lowers the balance on an existing invoice or on future ones.
A worked example
Northwind Supplies invoices you 4,000.00 for 200 boxes. Twelve arrive crushed, at 20.00 each. Northwind sends a credit memo for 240.00 that quotes the original invoice number. You pay 3,760.00 against that invoice, and the vendor balance drops to zero.
Booking it correctly
Apply the credit to the invoice it references, not as a negative bill floating on the vendor account. If you can't tell which invoice it corrects, ask the vendor before you apply it. A credit applied to the wrong invoice throws two balances off at once.
Look for credit memos that arrive but never get booked. They usually show up when you reconcile the vendor statement, as a balance that's lower than your books say. That's money you're leaving with the vendor.
Common questions
Is a credit memo the same as a refund?
No. A refund returns money. A credit memo reduces what you owe. A vendor may refund a leftover credit later if you ask.
What's the difference between a credit memo and a debit note?
The seller issues a credit memo to reduce what you owe. The buyer raises a debit note to ask for that reduction. They often describe the same adjustment from opposite sides.
Sources
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