Uses
- To allow the buyer to purchase an item or service from that seller on a future date, i.e. a gift card or store card credit. Credit notes may be issued by a seller as a goodwill gesture to a buyer who wishes to return previously purchased merchandise (instead of cash repayment) in circumstances where the original sales agreement did not include an explicit refund policy for returned items. In such circumstances, a credit note of value equal to the price of the returned item is usually issued allowing the buyer to exchange his purchase for other items available with the sale.
- To correct an invoice that has already been processed and sent to the buyer. If you have already sent an invoice to a buyer but now need to provide a credit for that invoice, you would send them a credit note or credit memo. You can think of a credit note as a "negative invoice." It can be used in some Enterprise Resource Planning software.
- For accounting purposes in the case of returned goods. After the sale, if the customer is not happy with the purchased goods for various reasons, such as damage, or if a product has expired (for example, food items), he would return the goods. This transaction has to be reversed for accounting purposes.
From the point of view of a company, credit notes can be classified in two groups:
- Credit notes sent to clients, issued by the company
- Credit notes received from suppliers, issued by others
A credit note sent to clients is considered as a sales returned for accounting purposes. A credit note received from suppliers is considered as a purchases returned.
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