What is a Debit Note? Debit Note vs. Credit Note

For business owners, in particular, debit notes and credit notes are perceived as official accounting documents. 

These notes, which stand alone from an invoice, let customers know how much they owe or, alternatively, how much credit is available to them from the business.

In addition, they are essential for tracking shipments, determining when payments are expected, and figuring out whether the account still has any available credit.

There are many different kinds of notes, but debit notes are one of the most important ones that businesses should be aware of. 

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This note is crucial for the company’s buying and selling processes; thus, it must be collected and archived.

Continue reading to find out more about a debit note, including what it is, when it is issued, and how it differs from a credit note.

Meaning and Reason to Create a Debit Note

A debit note (sometimes known as a debit memo) is a document that a seller will give to a buyer to inform them of current debt obligations.

These notes are frequently used in business-to-business transactions, such as when one company provides another with goods or services before sending an official invoice. For documentation, the debit note “takes note” of the transaction.

These deals frequently entail a credit extension, in which the vendor sends a shipment of products to the buyer’s business before the buyer has paid the purchase price. The note informs the purchaser that the vendor has debited money from their account.

Real money is not transferred until a legitimate invoice is generated, despite the fact that real products are being exchanged. Instead, to keep track of inventories supplied and payments due, debits and credits are recorded in an accounting system.

Since debit notes are typically written as letters and do not always call for immediate payment, they are distinct from invoices. This is applicable when the debit note is used to notify the buyer of impending debt obligations based on payments that have not yet been legally invoiced.

Debit notes are additionally used in business-to-customer transactions, for instance, when a client returns products that were given to them on credit. The debit note is, in this instance, issued to the seller by the buyer.

Let us now review some major grounds for issuing debit memos.

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When to Issue a Debit Note?

A purchaser issues a debit note to initiate a purchase return for items bought on credit when:

• The vendor is negligent in failing to deliver the products or services on schedule.
• The seller delivered inferior quality goods that were defective, broken, or in the wrong size, shape, or quantity.
• There are higher taxes on certain goods and services.
• Calculation errors result in overbilling for goods or services.
• The buyer is no longer interested in making the purchase.

A seller may also issue a debit note in the following cases:

• In the event that the seller requests invoice revisions
• When a seller modifies (increases) the billing sum
• When the customer increases the order quantity
• In order to remind the purchaser of their existing debt obligations

Alternate Forms of Debit Notes

Businesses sometimes use debit notes to bill for products that are not part of their core business. For instance, a business may issue a debit note for the rent if it sublets portions of its warehouse space.

Debit notes can also be used to fix invoice errors. For instance, if a client receives a lesser amount than what was charged on an invoice, a debit note could be issued to compensate for the difference.

Debit notes may be offered as shipping receipts with delivered items in addition to the letter format. Although the balance outstanding may be mentioned, payment is not expected until the buyer receives an official invoice.

This might give a buyer the option to return items without having to first make a payment if needed.

Some debit notes could be delivered in the format of informational postcards, which simply serve to remind the customer of the debt they have incurred. 

This is beneficial in situations where the seller is unsure whether the initial invoice was acknowledged or reviewed. Additionally, the postcard might include details on how to pay the debt with relevant contact information.

Credit Note vs. Debit Note

Listed below is a breakdown of the difference between debit vs. credit notes:

• The term debit note describes the letter one business sends to another to tell them that the seller’s account has been debited in the buyer’s books. The term credit note refers to a document used in commercial transactions that are delivered from one party to another to inform the recipient that a credit has been made to the buyer’s account in the vendor’s books.

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• Blue ink is used to create credit notes, whereas red ink is used to create debit notes. Nowadays, however, companies employ online invoicing software. InvoiceOwl is one such that you can use to create credit memos.
• A debit note will be issued following the receipt of a credit note as payment.
• A credit note will provide you with a negative amount. A debit note, on the other hand, will show a positive sum in any digital payment processing software.
• The use of debit notes results in a decrease in receivables. A credit note, on the other hand, will reduce the debt.

Final Words

We hope this blog provided you with appropriate insight on how debit notes work, on what grounds they can be issued, and how they differ from credit notes.

If you wish to easily create customized credit notes using credit note template and keep your customer accounts updated, then going digital and leveraging credit note management software is the key to achieving automation in your work processes.

It will help you impress your clients, work smarter, and get paid faster!