.avif)
.avif)
Imagine this scenario: You purchased an item from a store only to discover that it is not as described.
You quickly return it to receive a refund. But the refund never arrives. What does arrive is something else called a credit memo.
Don't worry, a credit memo is not a bad thing. Rather, it is monetary compensation for the product you have returned.
In this article, we will explain everything you need to know about credit memos. Let’s dive in!
What is a Credit Memo?
Have you been wondering what is a credit memo in Canada? A credit memo in Canada is a document issued by a seller of goods or services to a buyer that reduces the amount owed to the seller.
When you return an item, instead of a refund, you may receive a credit memo — which you can use to lower or completely eliminate the cost of your next purchase.
Think of a credit memo, also called a credit memorandum, as a store credit. You can use it the next time you buy something from the seller. Both individuals and businesses receive a credit memo on their bank statements after a return is completed.
You will likely not receive a credit memo every time you return a product since not every Canadian retailer issues credit memos. Typically, local retailers and small businesses offer credit memos, while big chain retail stores tend to issue refunds.
Banks also issue credit memos to businesses, which are called bank credit memos. A bank credit memo is a financial statement notifying a depositor about an increase in their account balance for a transaction, like a refund of a previous bank charge.
.png)
Find the best rates
When is a credit memo issued?
Generally, a credit memo is issued in Canada when you complete a return. You may also receive a credit memo if you overpaid for an item. Clerical errors or defective products are other scenarios in which a buyer may receive a credit memo.
If you own a business, you may receive a credit memo on your bank statement in the following scenarios:
- Your bank is issuing interest on your savings account balance.
- Your bank is refunding a bank account fee.
- Your bank collected a note for your business.
As a business owner, if you issue credit memos, you will need to report them on your tax records.
Credit memo vs a refund
Even though the buyer receives something from the seller when returning a purchased item, a credit memo is not the same as a cash refund.
When issuing a refund, a seller deducts the amount you paid for the returned item from the refund amount. You may use the returned amount any way you see fit, including purchasing another item from the same vendor or using it for another purpose.
A credit memo, on the other hand, gives you credit toward your next purchase from the same merchant. If provided by store A, it cannot be used to purchase an item from store B, nor can it be redeemed for cash.
Information included on a credit memo
A credit memo typically includes a written explanation of the transaction and a reference number.
Bank credit memos, which can help businesses keep track of inventory, usually contain the following information:
- payment terms
- shipping address
- billing methods
- item description
- price
- number of items purchased
- discount information
- purchase date
- purchase order number
- bank account number of the customer
What is a Debit Memo?
A debit memo is the opposite of a credit memo.
While a credit memo indicates that you will spend less on your next purchase from the seller, a debit memo indicates that you will owe the seller money the next time you buy from them.
Imagine you bought five items, but by mistake, the seller invoiced you for only three of them. Later, the seller realizes the mistake, but sending a new invoice is not possible.
So, what does the seller do? They send you a debit memo. You can pay the remaining amount directly or through the received debit memo the next time you buy something.
A debit memo, frequently also referred to as a debit note, is a correction to an invoice. If a business accidentally does submit an invoice for an amount that is lower than the customer actually owes, they can issue a debit memo to rectify the mistake and increase the invoice amount.
Businesses are not the only ones that create debit memos; banks also issue them. A bank sends a debit memo when it charges an account holder a fee on its bank statement, reducing the account balance in return.
When is a debit memo issued?
A debit memo is sent to a customer when a company invoices goods or services for less than their true cost.
A bank, on the other hand, may create a debit memo whenever it withdraws funds from a customer’s account due to fees or other related charges. Banks generally issue debit memos for:
- bank account maintenance charges
- monthly loan payments
- fees for bounced checks.
Conclusion
Customers receive a credit memo when they return a purchased item in Canada. Some sellers issue them instead of giving a refund. A credit memo is a shopping credit from the seller, meaning the amount will be deducted from your next purchase.
As a business owner, if you send credit memos, you will need to report them on your tax records.
Businesses can also receive credit memos. This happens when their financial institution adds money to their account, usually due to a refund of a previous charge or interest earned on the account balance.
If you need help with any life insurance needs, feel free to contact a Dundas Life licensed advisor today.
%20(1)%20(1).png)
-p-500.png)
.avif)
.svg){kind=small}
.svg){kind=small}
