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Credit Memo Generator

Reviewed & updated by Updated Originally published

A credit memo is a document used by businesses to record a credit issued to a buyer, including any applicable sales tax adjustments. This document can support a refund or reduce the amount the buyer owes.

How does a credit memo work?

When the buyer receives defective items, the seller issues a credit memo to the buyer, reducing the amount the buyer owes or recording a credit for items already paid for. The credit memo clearly states why the seller is issuing it. The reason for the adjustment is specified in the memo.

“Credit memo” is an abbreviation of “credit memorandum.” It is a document generated by the seller of services or goods and issued to the buyer, reducing the amount the buyer owes the seller under an earlier invoice.

The credit memo generally includes an explanation of why the stated credit amount has been issued. Information from multiple credit memos can later be combined to identify the reasons for these adjustments.

A credit memo can also be issued if the buyer returns the goods to the seller, if there is a dispute over pricing or a marketing allowance, or for another reason that reduces the amount the buyer owes under the original invoice.

The seller records the credit memo as a reduction in the balance of its accounts receivable, while the buyer records it as a reduction in the balance of its accounts payable, if the original invoice remains unpaid.

The seller should review all outstanding credit memos at the end of each reporting period to assess whether they have been applied to the relevant customer balances.

If the buyer has yet to pay the seller, the buyer can apply the credit memo against the amount due under the original invoice.

If the buyer has paid the full amount of the original invoice, the buyer can use the credit memo to offset an upcoming payment to the seller or request a refund, depending on the agreed terms.

Use the credit memo generator given below to create a memo for your business.

Business & Credit Memo
Customer & Reason
Adjustments & Tax Credit
Credit Memo Summary
Final Review

CREDIT MEMO

ISSUED BY
CREDIT TO
ORIGINAL INVOICE
INVOICE DATE
PO / REFERENCE
CURRENCY
Reason for Credit
Credited Items / Adjustments
DescriptionQty.Unit Price / RateCredit Amount
Credit Subtotal
Additional Credit / Allowance
Credit Reduction / Adjustment
Tax Credit
Gross Credit
Previous Credit Applied
TOTAL CREDIT
Credit / Account Notes
Authorized By / Signature
Customer / Recipient Acknowledgment
This credit memo adjusts the balance associated with the referenced transaction and should be retained with the original invoice/account records.

Why does a seller use a credit memo?

Sometimes, the buyer returns the items purchased because they are faulty. In such cases, the seller may issue a credit or refund the amount previously paid by the buyer. There are also many other situations, such as price disputes, in which the amount owed by the buyer is reduced.

The seller issues the credit memo to record the amount credited to the buyer’s account. This reduces the outstanding balance or creates a credit if the buyer has already paid. The credit memo is also useful for the seller because it provides a record of adjustments to accounts receivable.

Moreover, the buyer can also use the credit memo if they have not paid the seller. However, if the buyer has already paid the seller, they can use the credit to reduce future payments or request a refund, depending on the agreed terms.

Benefits of a credit memo

  1. The credit memo is beneficial to buyers because it records a credit or refund for faulty products received from the seller.
  2. The seller uses the credit memo to keep a record of adjustments to accounts receivable.
  3. The credit memo is also useful when the buyer wants to apply an available credit to future payments.

Credit memos are commonly used in business. Therefore, downloading a credit memo template can be very useful for anyone who wants to avoid creating one from scratch.

(MS Excel Template)

Credit Memo Template

Credit Memo Invoice File: 87 KB

Download

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