Credit Memo
A document reducing the amount owed by a customer.
A credit memo (or credit note) is issued by a seller to reduce the amount a buyer owes, typically due to returned goods, billing errors, or negotiated discounts after invoicing. It reduces accounts receivable on the seller's books and the payable on the buyer's. Credit memos should reference the original invoice and clearly state the reason for the credit.
Example
A wholesaler ships 100 units but 5 arrive damaged—they issue a $250 credit memo against the original $5,000 invoice, reducing the amount owed to $4,750.
Why It Matters for Your Business
Proper credit memo tracking prevents disputes, maintains accurate receivables balances, and provides an audit trail for adjustments.
Related Terms
More Invoicing Terms
AR Aging
A report categorizing outstanding invoices by age.
Billing Cycle
The recurring period between billing statements.
Days Sales Outstanding
Average days to collect payment after a sale.
Invoice
A document requesting payment for goods or services.
Late Fee
A charge applied when payment is not received by the due date.
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