A debit memo is an informal invoice that a supplier issues to show an additional amount owed due to an error and is many times created based on a customer complaint.
When to Use a Debit Memo
You may need to create a debit memo for various reasons like defective goods or because you have not charged the customer enough. A debit memo is used whether the error is found on the credit or the debit side of a transaction. Examples of corrections made with a debit memo include:
- Reallocation of a charge
- Reallocation of receipt of funds
- Transfer of expense
- Account assignment corrections
Some companies develop recovery [Report Writing|reports]] to cover the event that a payment is received for an invoice previously written off as bad credit. If monies come in to pay this debt after the fact, the 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.
Creating a the Memo
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:
Information to 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.
Preprinted forms make it easy to issue credits/debits with less effort. Customized forms are available with such features as consecutive numbering and can include your company logo and contact information. Debit memos are available in carbon or carbonless forms. Companies who provide these forms include:
Shopping for forms online allows you to browse for the form that meet your needs and offers a variety of payment methods. Some online forms companies offer bonus services like free shipping. Take your time to find the form that works for the best price.
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.