Debit note vs. credit note: What’s the difference?
Explore the difference between a debit and credit note by learning what each term means, plus when and how businesses should use them.
Both debit notes and credit notes are official accounting documents, both used by businesses but for different purposes. Separate from an invoice, these notes let buyers know how much existing business credit they have or conversely, how much they still owe. They’re also critical to shipment tracking, payments due or if any credit remains on the account.
What’s a debit note?
A debit note, or a debit memo, is a document issued by a seller to a buyer to notify them of current debt obligations. You’ll commonly come across these notes in business-to-business transactions — for example, one business may supply another with goods or services before an official invoice is sent. The debit note ‘makes note’ of the transaction for documentation purposes.
Debit notes are also used in business-to-customer transactions, such as when a customer returns goods to a business received on credit. In this case, the buyer issues the debit note to the seller.
What’s a credit note?
A credit note is a document issued by a seller to a buyer to notify that credit is being applied to their account. You might notice these referred to as credit memos, too. As a seller, you may issue a credit note when there’s a need to cancel all or part of an invoice for a variety of reasons, including:
- Changes to an order after an invoice is issued
- Goods returned or services rejected
- Goods were damaged during shipping
- Pricing mistakes on the original invoice
No actual money is exchanged with a credit note; rather, it’s used to offset a previous invoice that’s already been paid.
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