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How to Write an Effective Credit Memo

When in business, numerous accounting transactions need attention, dedication, focus, and time. Some of them include sending out an invoice, receiving payments, and getting orders from clients. A credit memo is an accounting document that helps in balancing different transactions.

What is Credit Memo?

A credit memorandum is a document sent by the seller to a buyer and comes typically after an invoice is issued. A simple explanation is that the document reduces part of the cost price and sometimes the whole amount charged. It reduces the pending balance on the buyer’s account. Do not confuse this memo with a refund. For a refund, you get the full amount back from the seller.

Information to Expect on a Credit Memo

A credit memo offers important information. You will find the purchase order number, billing, and the various terms of payment. Additional information includes the cost price, shipping address, the purchase date, and the date on the credit memo. Do you know why the details are vital? It is because they help the seller track all the inventory. The same document will give a reason to issue the credit memo.

Why is a Credit Memo Issued?

There are different reasons a seller will issue a buyer with a credit note. One of the reasons could be a defective item, wrong size, color, or a customer has changed his mind.

A price change could also make a seller issue a credit memo. It happens when a customer buys a product and there is a discount given after a day. The credit memorandum offers the difference in price paid and the new discounted price.

You will need experts to advise on how to handle everyday accounting and business needs. There are instances you will need to use reliable and excellent resources to make your work easier. It will help your business processes, save time, and have a significant interaction with your customers.

Credit Memo Template 

  1. Start with the business name, the physical address of the business, any contact information like email or the business website. The tax identification number should be at the top of the credit memo.

  2. If you have any code or numbers, use such details to identify the customer within the company.

  3. Indicate the credit memo’s number, use the original invoice number, and the required mode of payment.

  4. The credit memo requires five columns for the following information: quantity of items, identification number or description, reason for the credit memo, cost of item and total cost.

With all the information on the credit memo, it is clear that it is an important document. You need to have the skills to draft it the right way and include all the critical details.

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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