Debit Note Guide: What It Is and When to Use One
Everything you need to know about issuing and receiving debit notes
A debit note is a document issued by a buyer to a seller to request an increase in the amount owed, or to notify of a pending charge. It is the counterpart to a credit note — while a credit note reduces the amount a buyer owes, a debit note increases it. Understanding when and how to use debit notes helps maintain accurate accounting records and prevents payment disputes.
What Is a Debit Note?
A debit note (also called a debit memo) is a commercial document issued by a buyer to inform a seller that the buyer is debiting the seller's account due to an error or additional charge. Common scenarios: (1) The seller undercharged for goods or services. (2) Additional charges apply (freight, handling, insurance) not included in the original invoice. (3) Goods were received in excess of what was invoiced. (4) Price adjustments need to be formalized. The debit note serves as a formal request for the seller to issue a corrected invoice.
Debit Note vs Credit Note
Debit notes and credit notes are mirror documents. Credit note: issued by the seller to the buyer — reduces the buyer's payable amount (returns, overcharges, discounts). Debit note: issued by the buyer to the seller — increases the buyer's payable amount (undercharges, additional fees). In accounting: credit notes reduce accounts payable, debit notes increase accounts payable. Both reference the original invoice number and explain the reason for adjustment.
What to Include in a Debit Note
A professional debit note should include: (1) Document title — 'Debit Note' or 'Debit Memo'. (2) Unique debit note number (sequential). (3) Issue date. (4) Reference to original invoice number. (5) Buyer details (name, address, contact). (6) Seller details (name, address, contact). (7) Clear description of the reason for the debit. (8) Amount being debited (subtotal, tax, total). (9) Payment terms or due date. Keep copies of all debit notes for audit and accounting purposes.
Accounting Treatment
Buyer's books: When issuing a debit note, debit the relevant expense/purchase account and credit accounts payable. When payment is made, debit accounts payable and credit cash/bank. Seller's books: Upon receiving a debit note, debit accounts receivable and credit the relevant revenue/sales account. Tax implications: If tax (VAT/GST) applies, the tax portion of the debit must also be accounted for separately in both parties' tax returns.
Best Practices
Issue debit notes promptly — delays can complicate reconciliation. Always reference the original invoice number. Maintain a sequential numbering system for easy tracking. Send debit notes via email with delivery confirmation. Keep records for the legally required period (typically 5–7 years depending on jurisdiction). Review your purchase ledger monthly to ensure all debit notes are matched against corresponding invoices.
FAQ
Is a debit note legally binding?
A debit note itself is not a legally binding payment demand — it is a commercial document requesting a transaction correction. However, if both parties have an existing contract or purchase agreement, an unresolved debit note could form the basis of a legal dispute. Best practice is to resolve debit notes by issuing a corrected invoice.
Can a seller issue a debit note?
Technically, debit notes are typically issued by buyers. However, in some regions and industries, sellers do issue 'debit memos' to notify buyers of additional charges. The key is clarity — label the document clearly and ensure both parties understand the adjustment being made.
What is the difference between a debit note and a supplementary invoice?
A supplementary invoice is a new invoice for an additional transaction. A debit note specifically references and corrects an existing invoice. Use a debit note when adjusting a previous charge; use a supplementary invoice for a new, separate charge.