A debit memo is an informal accounting document that a supplier issues to show an additional amount owed, often due to an error. It provides documentation for debits made to client accounts. It is the opposite of a credit memo. Whereas a credit memo is issued when the company needs to credit funds to the customer's account, a debit memo is issued when the company needs to charge against a customer's account.
When to Use a Debit Memo for Receivables
Common accounts receivables (AR) situations for which a company might need to use a debit memo include:
- Notifying a customer that a payment was posted to their account in error, and so will be reversed
- Issing a pricing correction if an item was under-billed on a previous invoice, thereby informing customers of an additional amount due
- Communicating to customers who have pre-paid or otherwise have an account credit that fees/charges are being deducted from their funds
Using a Debit Memo for Bad Debt
Some companies develop recovery reports to cover the event that a payment is received for an invoice previously written off as bad debt. If monies come in to pay this debt after the fact, a debit memo can be issued to replace the original invoice. Accounting then applies this receipt against the memo. It's a good idea, if possible, to number the memo with the same number as the original invoice but to mark it with an asterisk or some other code so that when it appears in a detailed listing, the reference number indicates a recovery of funds.
Sample Debit Memo Template
If you occasionally need to issue debit memos to customers, you may want to use a basic template, like the example provided here. Just click the image to download the form, which will open as a PDF file that you can edit, save and print. Use this guide to printables if you need assistance with the document.
Creating Your Own Debit Memo
You can also create your own debit mem if you'd prefer. To create a debit memo, you'll follow the same basic format as a credit memo, including the customer name or number and the reason for the memo, along with details reflecting which items and quantities are affected. Include the number of the sales document or invoice, and any other delivery or billing documents. Parts of the memo include:
- Debit memos notify clients of money owed to you. Within the body of the memo, explain exactly what is owed and why. This alerts clients to exact items, quantities and invoice numbers that reflect monies still due to you.
- Include terms under which items were shipped and which items the client hasn't paid for.
- Record amounts clients owe and if other debit memos were issued, include dates of issuance for future reference.
Financial Software
Small business accounting software like QuickBooks also offers the ability to issue debit memos. Using financial software saves time and helps to accurately manage financial data and allows you to see the big financial picture at a glance. Another advantage to using software like this is the training provided, along with the support offered if you run into a glitch or have a question. Financial software provides memo templates to make creation of various memos, including debit memos, an easier task with less risk of creating further errors.
