Difference between Invoice And Credit Memo

For any financial professional, invoice, sales credit note, etc are common terms that are part of their daily affair. However, one should have a better understanding of invoice vs credit memo and should be aware of their usages in the financial domain.  

Here is an attempt to answer to all inquisitive minds that often get entangled with the issue of Invoice Vs Credit Memo.

 What is an Invoice?

invoice vs credit memo

An invoice is an itemized list of entries for which a company has to make payments to its suppliers, vendors or service providers. The Accounts Payable Department receives invoices from the suppliers or vendors and scrutinizes it before processing it for payment. In most of the cases, company issues Purchase Orders to its vendors, requesting the items to be supplied to them. The Accounts Payable Department matches the items listed on the Purchase Order with that of the Invoice and also verifies that the items are received by them to clear the invoice for the payment.

What is a Credit Note?

credit memo vs invoice

So, it explains above, what is an invoice. If everything is perfect, the items on the Purchase Order match perfectly with that of the invoice and products are rec (invoice vs credit memo) deprived in good order, the invoice is processed for the payment. But if, there appears any discrepancy, such as the items received are not in good order or wrong items are supplied, then the items are returned to the supplier.  This is when a credit note is issued.

How Invoice Vs Credit Memo relates ? For the items returned by a company to its vendor, the vendor needs to be issued a credit memo for the returned items. This would ensure that the vendor has been informed about the discrepancy in supplying the goods and agrees to the credit note to the customer for the items not supplied exactly that were asked through the Purchase Order.

So, what is the meaning of credit note and how to represent invoice vs credit memo? The Accounts Payable Department of a company uses both the invoice and the credit note for the payment processing. It deducts the amount of the credit memo from that of the invoice and clears the payment for the vendor.

When is customer credit note is issued?

There could be specific circumstances when you feel the need of issuing a letter of the credit note. Some of the common instances could be:

  1. You need to cancel an issued invoice fully or partially.
  2. You are seeking a partial credit for the wrong items supplied.
  3. The goods have already been purchased earlier and you want to request a refund for the goods returned to the vendor.

How to issue credit note?

Issuing a credit note is not a daunting task, whether you want to issue it manually or you are using any accounting software. You need to select the Invoice and the Credit Note to be reconciled. Then, choose the amount to reconcile as the value therein the credit note. When you apply the change, the reconciliation will be effected with a reduced invoice amount after deducting the amount in the credit note.

 What do you need to include in your letter for credit note?

  1. It should have a heading as ‘Credit Note’.
  2. You should mention the value that you are reducing from t (invoice vs credhe credit note invoice.
  3. The invoice credit note must be issued within a period of one month of the agreement.
  4. Your credit note for invoice should have a number for its identification, and an issuing date. Do not forget to mention the name and address of your company and also the VAT number.
  5. You also need to mention the name and address of the vendor or supplier you are crediting.
  6. Mention the reason for issuing the credit invoice.
  7. The total net amount for which you are seeking the credit (excluding VAT).
  8. The rate of applicable VAT and the amount to be credited under VAT.
  9. The gross amount of credit, including the applicable VAT.

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Veronika Tondon is a business enthusiast with extensive experience in Invoicing & Payment Process. She has 6+ years of experience in Invoicera, the leading cloud-based invoicing solution as Invoicing Consultant. Sound knowledge in business process execution, offers end to end solutions for complete automation of business processes and AR/AP processes. Contact Veronica for your invoicing requirement.

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