What is a Credit Memo?
What does a credit memo mean? A credit memo is a document that is given by sellers to customers that denotes that they still have a buying credit from their store or company. It happens when customers return or exchange products and get a credit from the money that they have already paid to the seller. A vendor has to make an account of the money that the buyer has paid. It will be in a form of a credit that the buyer can use for future purchases. In the case of a cash sale, the credit memo is the amount of benefit that the seller owes to the buyer.
A credit memo is the shortened form of a credit memorandum. It is also called a credit note. It is the overpayment from goods that are exchanged or returned. When the seller sends an invoice to the buyer next time, the amount in the credit memo can be credited and can be subtracted from the present amount of goods. A credit memo is a good accounting tool that helps sellers to settle the buying accounts of customers. A customer may have some benefits from a credit memo. He or she will have future funds to be spent on future purchases. It can also be good for a supplier because they do not have to return the remaining credit and that amount can also be spent in their store.
In times of a discount, a credit memo is also produced. Especially, if the customer pays in advance. The payment will turn into a credit that can be used for other things that the customer may buy. Sometimes, the customer does not have to pay in cash if the credit memo balance is sufficient. It can be a form of a debit that the customer has in the store. A supplier can have a great way to handle their accounts payable through a credit memo. Even in bank reconciliation, a credit memo is good. A bank credit memo is also good for customers.
Is a credit memo a refund? No, they are different. In a refund, you can get the cash from the products that you have returned. But in a credit memo, you can use the remaining amount to buy other products in the same store or supplier. A refund is actual money and the credit memo, on the other hand, is an existing balance that you can use as a benefit. Having a credit memo can be good, especially if you are a regular customer of the supplier. You can be sure that you can use it in the future. In times when you do not have cash, it can provide a great benefit. To give a credit memo to customers is just being fair to them. They should use every cent that they have paid you. It is one good way to return their money.
When Do You Issue a Credit Memo?
There are various reasons by which a seller may issue a credit memo to a customer. The most common scenarios are the following:
- The buyer returned the products for some reason. Or he or she may have rejected the services. In times like this, the seller should issue a credit memo that will give credits in return for the money that has been spent.
- The goods that are delivered are damaged and defective. The buyer may return or exchange the products. The costs are not the same and the excess money should be credited through a credit memo.
- There are clerical errors in the invoice. The buyer has paid an extra amount and the seller has to return it. It can be credited in the way of having a credit memo.
- The buyer has overpaid the products. In times like this, the money that is excess from the original amount should be credited in the credit memo.
Benefits of a Credit Memo
Have you wondered what a credit memo sample or credit memo example is for? Have you thought about the benefits that it can give? If you want to know the benefits and advantages of a credit memo, you can consider the following:
Avoid Mistakes on Financial Data: The credit memo can provide accurate financial data to your company. You can be sure that you will have a good accounting technique. You will never lose an amount because every cent will be credited in the credit memo. As you will make a financial audit, you can be sure that all transactions are accurate. You will know the origins of each transaction and how they occurred. When you conduct your financial audit, you will not have any problems. Mistakes can happen if you will not have a credit memo. Do not have a lack of concern to have evidence of all the transactions. Through a credit memo, you can minimize errors because you can record all notes.Knowing Your Errors: You can track your errors using credit memos. Because you will record every transaction, you will know if you have missed something. Errors are normal in business operations. But you have to find a way how you can monitor your errors. The finance department needs a good accounting tool that can help you know your errors. Because it is hard not to make mistakes in financial statements, you can use the credit memo to balance your finances. The credit memo has the records of all your transactions so you can evaluate everything through it.Good Order in Administration: Your administration will have a good function by having a credit memo. Everything will be in order. You will not experience unnecessary troubles when customers have to return or exchange products. You can be sure that everything can be handled well by your staff. If not with the credit memo, you will not have the proper procedure when customers will return and exchange products. You will not know what to do when you owe something to your customer in case of overpayment and other situations. Through the written notes, your administration can have everything in order. They can even use a document management system that can make everything easier. They can view every transaction easily. It can truly help your business regarding accounting standards.Gives Guarantee to Clients: You can guarantee to customers that they can get their money back through the credit memo. They may not have it in cash but it can be converted into products that they can possess. Without a credit memo, the clients may worry about the money that they have paid. They may dislike your company if they will think that they are wronged in times of damaged products. But if they will know that you have a credit memo in your company, they can have the relief that their money will not be wasted. The credit memo can build your reputation because customers will know that their money will be well-spent. They can have credit anytime if they will ever return or exchange your products. They do not have to worry that they have to spend for nothing. A credit memo can boost your brand in the way that it can also keep your customers to keep on buying from you.Shows Your Business Has Responsibility: You can prove that you have a good business by having a credit memo. It means that you will not get away with the money of the customers if ever you will have damaged products. You can show that you have responsibility for everything that you will owe your customers. They can trust you if they will know that you have a credit memo. They will know that every cent that they will spend on your company will be worth it. You can have regular customers through it. They can keep on buying from you because they know that you have a good strategy for your products. They will not fear in times when you may have a mistake on your products. You will not have an angry customer that can be dissatisfied with your service. Just by giving a credit memo, everything will be settled. You do not have to lose any customers when unexpected things happen.Accurate Reporting: You can have accurate reporting for your business. Your staff can accurately relay to you all the transactions. A credit memo will show all errors and you can balance your financial statements. No one has to worry that there will be any gap in the finances. The credit memo will reveal where all the money that you have profited has gone. You can have a good accounting that can show you what happened to all your products.Good Relationship with Clients: A credit memo is a good way how you can build a good relationship with your customers. They will know that they are in good hands through the credit memo. They do not have to worry about damaged products. Customers know that a credit memo is profitable. They can be sure that their money will go to good things. They will like your company because you are clear with your transactions and you have a good system. It can be a start of a good relationship with them. They can patronize your product or service because they will think of your business as a good one.Good Business Performance: Your business operations will be better through the help of a credit memo. You will have a good way of how you can evaluate your business performance. A credit memo can provide a good workflow for your business. You do not have to experience all the troubles that you can get when a customer complains about your product. Customers have simply to return or exchange the product and receive a credit memo. After that, everything will be alright. You do not have to face any legal issues because of customer complaints. Your business can perform better with a credit memo.Avoid Conflicts: When your products are damaged, you can face an irate customer that may sue you in court. Customer complaints are serious things. To avoid this kind of thing, you should provide a credit memo that can assure them that their money can be returned through credits. This way, no one has to have a conflict with you because of wrong products. This is a great solution for those kinds of things. We may never avoid bad things to happen. So we should think of a solution that can make everything okay. And that is to have a credit memo that can satisfy all your clients.
How to Create a Credit Memo
Are you looking for a credit memo template? Are you going to create a credit memo? Maybe you are looking for steps that you can use. We can offer you some steps that you can use in creating. They are the following:
1. Title the Document
The first thing that you need is to write the title of the document. Write “Credit Memo” at the top of the page. Then, write your business name, address, contact information, website, and tax identification number.
2. Customer Information
After your business details, you must write the customer’s information. Place it on the right side of the page. If there is a number code to identify the customer, you must write it. Write the name of the customer, address, and contact information. If you have their email, you can add it also.
3. Credit Memo Details
Then you should write the date when the credit memo is issued. Write the number of the credit memo. You should include the original invoice number. Add also the payment terms on the left side of the page.
4. Write the Credit
Divide the middle of the page into five columns. The first column should have the quantity of the credited item. The second column is the item identification number. The third column is the reason for the credit. The fourth column is the price of the item. The fifth column is the calculation of the credit.
FAQs
Why are credit memos used?
If there is an error or if the customer wants to return the product, the monetary credit will be given to the customer’s account.
What if all the credits are applied to invoices?
The credit memo will be marked as closed if all credits have been spent on invoices.
Is a credit memo important?
Yes, it is important to both the buyer and the seller. The buyer will be confident about his or her money. The seller can be assured that customers will trust their company.
A credit memo is the best resort when there is something wrong with the products of the seller. It is good for some issues that can be encountered by a seller and a buyer. It can settle everything so that there will be no need for conflict. Well, do you need a template for a credit memo? This post has 20+ SAMPLE Credit Memo in PDF. You can create a great credit memo through these templates. Download now!
