Debit note - What is a debit note?
A debit note (also known as debit memo) can be issued from a buyer to their seller to indicate or request a return of funds due to incorrect or damaged goods received, purchase cancellation, or other specified circumstances.
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A debit note can be treated as a credit note, except it is issued from the buyers side, and is issued before a credit note can be issued from the supplier.
In other words, a debit note basically acts as a buyers formal request for a credit note from the seller. The document therefore serves as evidence to support a purchase return in the accounting books of a buyer.
When to issue a debit note
As a customer, if you receive goods that you would like to return back to the supplier, you can issue a debit note to your supplier to claim back for goods you have received on credit.
If you (buyer) purchase goods from a seller or supplier, and you would like to return the goods for any valid reason, you can issue a debit note.
There are several reasons in which a debit note should be issued. Some common scenarios when to issue a debit note include:
- Goods received are damaged or defective
- The purchaser has been overcharged
- The invoice value is incorrect (due to extra goods being delivered, or goods are charged at lesser value, etc.)
Debit note example
The process of a debit note is very similar to that of the credit note. Debit notes should always be kept for your accounting records, as a formal and evidential document.
An example of a situation when a debit note is issued:
- Company A purchases goods worth £200 from Company B.
- Upon arrival at Company A, the goods are damaged. Company A would like to return the goods to Company B.
- Company A issues a debit note - containing all the relevant information including original purchase amount and VAT.
- When Company B receives the debit note, they can review and approve the request, and issue a credit note as proof of reimbursement to Company A.
In this case, it is the buyer who issues a debit note to the supplier as a request for credit or reimbursement.
However, there are also cases when a debit note is issued from the supplier to the buyer. For example:
- Supplier, Company Z, sells and ships goods worth £5000 to buyer, Company X.
- Company Z invoices Company X for only £4000 (due to a mistake)
- Company Z realises their mistake, and issues a debit note to Company X for the difference of £1000 to resolve the difference, and make the necessary adjustments in their accounts receivable.
Debit notes and Debitoor
If you work in a business that sells products or goods, one of the ways to avoid a debit note being issued is to first create a [proforma invoice].
This way, the invoice you send to your clients does not need to be the final invoice, and you can still make any necessary adjustments before issuing the final invoice.
If, on the other hand, you send an invoice to customers for goods you have sold them on credit, and the goods received are damaged, then your customers can issue a debit note to you. When you receive this debit note, if you are using an invoicing software such as Debitoor you can easily respond to their debit note by issuing a credit note.