Accounting terms

Dictionary of all accounting terms





What is a Credit Note?

A credit note is a letter sent by the supplier to the customer notifying the customer that he or she has been credited a certain amount due to an error in the original invoice or other reasons.

A credit note is also known as a credit memo, which is short for "credit memorandum." This is a commercial document that the supplier produces for the customer to notify the customer that a credit is being applied to the customer for various reasons.

The reasons normally include the following:

  • the customer returned the goods or rejected the services for any number of reasons
  • the goods were damaged in some way, usually during transit
  • there was a mistake in the price on the original invoice
  • the customer overpaid the original invoice

On the credit note, the supplier will list the products, quantities and product or service prices that were agreed-upon by both parties. It will normally reference the original invoice and state the reason for the credit note.

The credit can be provided to the customer as money, or (as usual) it can be applied to future purchases.

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