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.
Below, we’ll be discussing debit note vs. credit note, and the
benefits of debt vs. credit accounting.
What is 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 can be helpful tools to track any outstanding debt
obligations you may have as a vendor, while also accounting for
any sort of goods that buyers may have gotten on credit. While
they may be less popular, as credit-based transactions are less
frequent, many still use these to balance their accounts.
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.
Is a debit note the same as an invoice?
While debit notes are similar to an invoice, they are not
necessarily the same. Invoices can be used to show a sale or a
transaction and may be sent preemptively to the purchaser for
the transaction of any sort of goods or services. Debit notes or
debit receipts cannot, and are generally used to show returns or
an addendum that has already occurred. They are a form of
documentation used for these specific purposes.
While an invoice cannot take the place of a debit note, a debit
note can be used as an invoice if the provisions are clearly
outlined. This can be a rare occurrence, however, and may only be
used for specific circumstances that are beyond the realm of
traditional business and accounting operations.
What is a credit note?
Credit vs. debit. Which is better? To answer this question, we
have to explore the differences between debit vs. credit
accounting.
A credit note is a document issued by a seller to a buyer to notify
them that credit is being applied to their account. You might
notice these are referred to as credit memos. 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.
The benefits of using a credit note in your accounting process
include:
Legal acknowledgment. Credit notes are generally
considered legal documents and a form of record keeping,
much like invoices are. With the provisions and
documentation present in a credit note, you can properly
track the accounting process for your financial records —
accounting for any form of reversal, deletion or adjustment.
They permit the use of credit. If your business or operation
wants to offer stowaway or on-credit purchases, credit notes
can be helpful tracking tools.
Is a credit note the same as a refund?
Many wonder if a credit note is the same as a refund, essentially
being used interchangeably in business.
Technically, since a credit note is given to the customer in place
of a refund, it cannot be used in this way. The closest comparison
for many professional business owners is a voucher — a special
slip that enables later purchases on credit from a specific place of
business. These can be used whether or not the business is a
standalone, a sole proprietorship or a large-scale chain.
Some may consider a credit note to be “better” or more strategic
than a refund. You can still boost brand presence and awareness
as you trade goods, protecting your image and the customer
service experience.
Keep business transactions moving.
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