A Credit Memo, What Is It?
A Credit Memo (short for "credit memorandum") is a commercial document issued
by a Seller to a Buyer, indicating the products, quantities and agreed prices
for products or services that the Seller provided the Buyer with, but Buyer
returned or did not receive. It may also be issued in the case of errors or
allowances. A Credit Memo can reduce or eliminate the amount that the Buyer has
to pay the seller in respect of the original Invoice issued earlier.
The Credit Memo usually contains: PO #, Date, Billing Address, Shipping Address, Terms of Payment, List of products with quantities and prices. Usually it also references the original Invoice and sometimes it states the reason for issue.
Credit Memos are often called Credit Notes or just Credits.
The seller usually issues a Credit Memo for the same or lower amount than the invoice, and then refunds the money to the buyer or sets it off against a balance due from other transactions.
The term may also refer to the document provided by a bank to a depositor to indicate that the depositor's balance is being increased because of some event other than a deposit, such as the collection by the bank of the depositor's note receivable.