Debit note - What is a debit note?
A debit note, also known as a debit memo, is issued from a buyer to their seller to request a return of funds due to incorrect or damaged goods, purchase cancellation, or other specified circumstances.
A debit note is similar to a credit note, except it’s issued from the buyer's side. Therefore, debit notes are issued before a credit note can be created by the supplier.
A debit note acts as a buyer's formal request for a credit note from the seller. The document serves as evidence to support a purchase return in the accounting books of a buyer.
As a customer, if you purchase goods from a seller or supplier and 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 of when to issue a debit note include:
The 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 a lesser value, etc.)
The process of a debit note is very similar to that of a 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 the 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’s 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:
A supplier, Company Z, sells and ships goods worth £5000 to a 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 £1000 to resolve the difference and make the necessary adjustments in their accounts receivable.