This could be post-sale discounts or when the seller changes the price due to defects found in the product.

You can issue a credit memo when the deal has already been completed but the price of the product or service changed for some reason. The manufacturer issues a credit memo to the dealer for an amount equivalent to the cost of spare parts (replacements of defective parts). In this instance, a credit memo is requested alongside replacing defective or broken parts with new ones once they are available in stock. Here credit memos are used when the seller has already sent a product that either was damaged or lost during the shipping process. Subsequently, the seller will then generate a new invoice with a new invoice number, and the correct amount will be deducted from the buyer’s account with the remaining balance available for future invoices. On the seller’s side, in case an incorrect invoice has already been posted as “paid” in accounting, a credit note will be issued to the buyer’s account to turn the payment made by that customer into credit. Reasons why credit memos are issued Correction of an invoice error Keep in mind that a credit memo isn’t the same as a refund.Ī refund reverses the original purchase, placing funds back in the buyer’s hands.Ī credit memo is a separate transaction that reduces the amount of the original invoice, with the balance (the overpaid amount) credited to the buyer to apply toward future purchases.

Sellers often issue a credit memo in cases of rejected goods or services (damaged or unsatisfactory product), incorrect price of an original invoice (discounts) or when a buyer has overpaid on the original invoice. The seller issues credit to the buyer that reflects the amount overpaid. A credit memo (credit memorandum) is issued by a seller of services or goods to a buyer when the buyer has paid more than they should to settle an invoice.

Credit memo example