Credit Memo – Definition & Reasons

Credit memo (short form of credit memorandum) is a document which is issued by the seller to buyer for adjustment of amount for an invoice. The document can be issued for any of the below reasons:

Reasons for issuing credit memo:

  1. For not delivering the goods or services.
  2. Product is returned by the buyer
  3. To adjust the amount which has already been received by seller through previous invoice
  4. For any discount given/ price change after invoice is raised.
  5. For any other reason by which buyer is paying partial amount to seller.

Credit memorandum usually contains the information like purchase order (PO) number, date of invoice issued, amount of invoice, reason for which credit memo is issued along with the adjusted amount.

The aggregate of credit memorandum is later used to check various reasons for which these notes were issued by the company.

Credit memos which are yet to be issued (Opened credit memos) can be used to offset the amount of account receivable.

Credit memo is also known as ‘credit note’.