What is a 'Debit Note'
A debit note is a document used by a vendor to inform the buyer of current debt obligations, or a document created by a buyer when returning goods received on credit. The debit note can provide information regarding an upcoming invoice, or may serve as a reminder for funds currently due. For items being returned, the total anticipated credit amount may be included, as well as an inventory of the returned items and the reason for the return.
BREAKING DOWN 'Debit Note'Also known as a debit memo, debit notes are generally used in business-to-business transactions. Such transactions often involve an extension of credit, meaning a vendor sends a shipment of goods to a company before the cost of the goods is paid by the buyer. Although real goods are changing hands, real money is not being transferred until an actual invoice is issued. Debits and credits are instead being logged in an accounting system to keep track of inventories shipped and payments owed.
These documents are separate from invoices in that debit notes are generally formatted as letters, and they may not require immediate payment. This is true when the debit note is used to inform the buyer of upcoming debt obligations based on amounts that have yet to be officially invoiced.
Alternate Forms of Debit Notes
Aside from the letter format, debit notes may also be provided as shipping receipts with received goods. While the amount due may be noted, payment is not expected until an official invoice is sent to the buyer. This can allow a buyer the opportunity to return goods, if necessary, without first having to provide payment.
Some debit notes may be sent as informational postcards that only serve as a reminder of the debt the buyer has accrued. This can be helpful in cases in which the seller is not certain if an original invoice was received or reviewed. The postcard can also contain information on how the debt can be settled, such as relevant contact information.
Debit Notes as Optional Documents
Not all companies choose to send debit notes to buyers with outstanding or pending debt obligations. Generally, a seller either considers it a standard business practice and uses it according to internal procedures, or does not use it at all. In some cases, a buyer can request a document with the information that would be contained in a debit note, to meet internal recordkeeping requirements.