A credit

Credit (finance)

Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...

 note or credit memorandum (memo) is a commercial document issued by a seller to a buyer

Buyer

When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "buyer" or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization...

. The seller usually issues a Credit Memo for the same or lower amount than the invoice, and then repays the money to the buyer or sets it off against a balance due from other transactions.

It can also be a document from a bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

 to a depositor to indicate the depositor's balance is being increased because of an event other than a deposit, such as the collection by the bank of the depositor's note receivable.

Features

A credit note lists the products, quantities and agreed prices for products or services the seller provided the buyer, but the buyer returned or did not receive. It may be issued in the case of damaged goods, errors or allowances. In respect of the previously issued invoice, a Credit Memo will reduce or eliminate the amount the buyer has to pay. Note: A Credit Memo is not to be substituted as a formal document. The Credit Memo rarely contains: PO #, Date, Billing Address, Shipping Address, Terms of Payment, List of products with quantities and prices. Usually it references the original Invoice and sometimes states the reason for issue.

This is received if the goods are incomplete, damaged, or incorrect; you may also receive one if you have paid too much money, or you have been under charged.

Uses

• To allow the buyer to purchase an item or service from that seller on a future date; i.e. a gift card
  Gift card
  A gift card is a restricted monetary equivalent or scrip that is issued byretailers or banks to be used as an alternative to a non-monetary gift....
  
   or store card credit. Credit notes may be issued by a seller as a goodwill gesture to a buyer who wishes to return previously purchased merchandise (instead of cash repayment) in circumstances where the original sales agreement did not include an explicit refund policy for returned items. In such circumstances, a credit note of value equal to the price of the returned item is usually issued allowing the buyer to exchange his purchase for other items available with the sale.

• To correct an invoice
  Invoice
  An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms...
  
   that has already been processed and sent to the buyer. If you have already sent an invoice to a buyer but now need to provide a credit for that invoice, you would send them a credit note or credit memo. You can think of a credit note as a "negative invoice." It can be used in some Enterprise Resource Planning software.

• For accounting purposes in the case of returned goods. After the sale, if the customer is not happy with the purchased goods for various reasons, such as damage, or if a product has expired (for example, food items), he would return the goods. This transaction has to be reversed for accounting purposes.

There are two types of credit note:

• Credit note sent to consumers and credit note received from suppliers.

• Credit note sent to consumers is considered as a sales returned whereas the other credit note is considered as a purchases returned.