What is a credit memo?
A credit memo (short for credit memorandum) is a document issued by a seller to a buyer that reduces the amount owed on a previously issued invoice. It’s the standard way to handle returns, billing corrections, and post-invoice adjustments in US business accounting.
Rather than modifying or voiding the original invoice, the seller issues a credit memo that formally records the adjustment. This keeps the accounting trail clean and makes reconciliation straightforward for both parties.
If you’ve heard the term “credit note,” it’s the same thing — credit note is the UK and Commonwealth term, while credit memo is standard in the US.
What should a credit memo include?
A complete credit memo includes:
- Header: The words “Credit Memo” clearly displayed, a unique credit memo number, and the date of issue
- Seller Details: Your company name, address, and contact information
- Buyer Details: The customer’s name, address, and account number
- Original Invoice Reference: The invoice number and date being credited — essential for matching the adjustment to the right transaction
- Reason: A clear explanation for the credit (e.g., “Returned merchandise”, “Billing correction”, “Volume discount adjustment”)
- Line Items: The specific items or services being credited, with quantities, unit prices, and line totals
- Sales Tax: If applicable, the sales tax amount being credited
- Total Credit: The total amount being applied to the customer’s account
Last updated: March 2026