how a debit note works
a debit note is generally used in business to business b2b transactions these transactions often involve an extension of credit which means that a vendor sends a shipment of goods to a company before the buyer s cost is paid debit notes tell the buyer that the seller has debited their account although real goods change hands real money is not transferred until an actual invoice is issued debits and credits are instead logged in an accounting system to track shipped inventories and payments owed debit notes are separate from invoices because they 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 special considerationssome companies use debit notes to bill for items that are not their primary business for example if a company sublets some of its warehouse space it might issue a debit note for the rent debit notes might also be used to correct mistakes in invoices if a client is underbilled on an invoice for example a debit note might be issued for the missing amount that should have been billed in addition to 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 that the buyer has accrued this can be helpful in cases where 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 not all companies choose to send debit notes to buyers with outstanding or pending debt obligations a seller generally 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 contained in a debit note to meet internal recordkeeping requirements debit note featuresdebit notes may look different based on the issuer however there are a few distinct components that every vendor includes on these documents the following is a list of some of the features of a debit note debit notes are also known as debit memos debit note vs credit notea credit note is different from a debit note a credit note is issued by a supplier or seller to their customer this document advises the customer that there is a credit applied to their account vendors may issue credit notes if credit notes may be used to cover all or part of the value of the bill however the credit note is not a refund it indicates that the customer s account has a credit on file this credit can be used to offset the cost of future purchases 