Credit Memo
A credit memo, short for credit memorandum, is a document a seller issues to a buyer to reduce the amount owed on an invoice that has already been sent. It is used for returns, pricing errors, damaged goods, or agreed discounts. The credit can be applied against the original invoice, used on a future one, or refunded if the invoice has already been paid.
Last updated: November 2026
When is a credit memo issued?
- Returns: the buyer sends goods back.
- Billing errors: the invoice charged the wrong price or quantity.
- Damaged or missing items: part of the order did not arrive as agreed.
- Discounts and allowances: the seller agrees to reduce the price after invoicing.
What does a credit memo include?
A credit memo names the seller and the buyer, carries its own number and date, refers to the original invoice, and states the amount being credited and the reason. It usually mirrors the layout of the invoice it corrects, so the two can be matched line by line.
Credit memo example
A supplier invoices a customer $12,000 for 80 units. The customer returns 10 units worth $1,500. The supplier issues a credit memo for $1,500 against that invoice, and the customer now owes $10,500. If the customer had already paid the full $12,000, the $1,500 would be held as a credit on the account or refunded.
Credit memo vs. debit memo
A credit memo reduces what the buyer owes. A debit memo does the opposite: it increases the amount owed, for example when an invoice undercharged. Buyers also use debit memos to tell a supplier they are deducting an amount from a payment.
Credit memo vs. refund
A credit memo is a document that changes the balance between two parties. A refund is money actually sent back. A credit memo can lead to a refund, but often the credit is simply used against the next invoice.
Credit memos in ad spend
On invoiced ad accounts, adjustments to an earlier invoice, such as credits for invalid traffic, sometimes arrive as credit memos. Google's Display & Video 360 and Search Ads 360 both issue them. They have to be matched to the invoice they relate to, or the books will overstate what was spent. That makes them part of ad spend reconciliation, alongside the remittance advice sent with each payment.
How Opal fits
Opal Ad Pay lets businesses pay Meta and Google invoices with a card instead of a bank transfer. See how Ad Pay works.
Frequently asked questions
No. A credit memo records that the buyer owes less or is owed money. A refund is the payment that returns money. A credit memo can be settled by a refund, or the credit can be applied to a current or future invoice.
The seller records it as a reduction in accounts receivable and in revenue, often through a sales returns and allowances account. The buyer records it as a reduction in accounts payable and in the related expense or inventory.
In banking, a credit memo is a notice that the bank has added money to an account, for example interest earned or a payment it collected on the customer's behalf. It is a different use of the same term.
See what Opal can do for you
Learn how our spend platform can increase the strategic impact of your finance team and future-proof your company
