Credit Memo vs Debit Note: When to Use Each

Credit memos and debit notes both adjust the amount owed between two parties — but they work in opposite directions and are issued by different parties. Getting them wrong creates bookkeeping errors that are painful to untangle.

What Is a Credit Memo?

A credit memo (or credit note) is issued by a seller to reduce the amount a buyer owes. You issue a credit memo when you've overcharged, when a client returns goods, or when you've agreed to a price reduction.

• Issued by: seller
• Effect: reduces amount owed by buyer
• When to use: overcharge, return, discount after invoice
• Example: You invoiced $1,000, client returns $200 of goods → issue credit note for $200

What Is a Debit Note?

A debit note is issued by a buyer to a seller to request a reduction in the amount owed — or by a seller to increase the amount the buyer owes. It's the mirror image of a credit note.

• Issued by: buyer (requesting credit) or seller (additional charges)
• Effect: increases or decreases the original invoice amount
• When to use: underbilling, additional charges, purchase returns from buyer side
• Example: You invoiced $800 but should have charged $950 → issue a debit note for $150

Quick Reference

How to Handle These in Matey

In Matey, you can issue credit notes directly against an existing invoice. This keeps your records clean — the original invoice stays on file, and the credit note is linked to it. For debit notes (additional charges), raise a new invoice referencing the original.