Some daily business terms and type of transactions include common terminologies that might get a little confusing and bounce over your head. Here you can know the difference between Invoice and a Credit Memo.

1. Find out the difference between Invoice And Credit
Memo?
(Source: Invoicera Blog)
Some daily business activities and transactions include common terminologies that
might get a little confusing and bounce over your head. But, the initial confusion should
not stop or hamper your work. Do not Worry! None of these terminologies are tricky as
solutions in chemistry labs.
Having a clear understanding of such business day to day terms and their usage is
important for its fundamental growth. A deeper understanding of the major difference
between an invoice and a credit memo has been listed down here. It will help you have
a clearer vision about the terms and their practical usage in the business.

2. What is an ​Invoice​?
An invoice is an itemized list of entries for which a company has to make payments to
its suppliers, vendors or service providers. The​ Accounts Payable​ ​Department
receives invoices from the suppliers or vendors and scrutinizes it before processing it
for payment. In most of the cases, the company issues Purchase Orders to its vendors,
requesting the items to be supplied to them. The Accounts Payable Department
matches the items listed on the Purchase Order with that of the Invoice and also verifies
that the items are received by them to clear the invoice for the payment.

3. What is a ​Credit Memo​ or Credit Note?
So now you know, what is an Invoice and its role in your business. If everything is
perfect, the items on the Purchase Order match perfectly with that of the invoice and
products are received, the invoice is processed for the payment. But if there appears
any discrepancy, such as the items received are not in good order or wrong items are
supplied, then the items are returned to the supplier. This is when a credit memo is
issued.
For the items returned by a company to its vendor, the vendor needs to issue a​ ​credit
memo​ for the returned items. A credit memo is issued when the client has paid advance
payments to the vendors. This would ensure that the vendor has been informed about
the discrepancy in supplying the goods and agrees to the credit memo to the customer
for the items not supplied exactly that were asked through the Purchase Order.
So, what is the role of this note and how it represents invoice vs credit memo? The
Accounts Payable Department of a company uses both the invoice and the credit note
for the payment processing. It deducts the amount of the credit memo from that of the
invoice and clears the payment for the vendor.

4. When is a customer credit memo issued?
There could be specific circumstances when you feel the need to issue a credit memo
to your customer. Some common instances could be, as followed:
1. When you need to cancel an issued invoice fully or partially.
2. You are seeking a partial credit for the wrong items supplied.
3. The goods have already been purchased earlier and you want to request a refund for
the goods returned to the vendor.
How to issue a credit note?
Issuing this note is not a daunting task, whether you want to issue it manually or you are
using any accounting software. You need to select the Invoice and the Credit Note to be
reconciled. Then, choose the amount to reconcile as the value therein the credit note.
When you apply the change, the reconciliation will be effected with a reduced invoice
amount after deducting the amount in the credit note.
What do you need to include in your letter for a credit note?
1. Start with the heading as ‘Credit Note’.
2. You should mention the value that you are reducing from the invoice vs credit note
invoice.
3. It must be issued within a period of one month of the agreement.
4. Your credit note for invoice should have a number for its identification, and an issuing
date. Do not forget to mention the name and address of your company and also the
VAT number.

5. 5. You also need to mention the name and address of the vendor or supplier you are
crediting.
6. Mention the reason for issuing the credit invoice.
7. The total net amount for which you are seeking the credit (excluding VAT).
8. The rate of the applicable VAT and the amount to be credited under VAT.
9. The gross amount of credit, including the applicable VAT.
The above was the complete process to generate a credit note for your customer. Keep
the same in mind, the next time you are generating one for your customers.
CONCLUSIONS
The much confused terms of Invoice and Credit Memo would now hold a clearer
statement in your minds. Two completely different yet common terminologies are
important for day to day business functioning and require utmost clarity.
The difficulties of terms don’t make the task difficult for you as the sole owner or small
business. It is something that can be done easily and professionally. Invoicera an
online invoicing software​ ​easily helps you to create professional looking invoices,
credit notes and other memos with ease of a few clicks. In order to have further clarity
about the same.
Frequently Asked Questions
Ques: How is a credit note different from an invoice?
Ans​: An invoice is an itemized bill issued by a business against the services offered.
Whereas, a credit note is a promissory note offered to clients in exchange for returned
orders.

6. Ques: When is a credit memo issued to a customer?
Ans: ​There could be specific circumstances when you feel the need to issue a credit
memo to your customer. Some common instances could be, as followed:
● When you need to cancel an issued invoice fully or partially.
● You are seeking a partial credit for the wrong items supplied.
● The goods have already been purchased earlier and you want to request a
refund for the goods returned to the vendor.
Ques: Why Should you Choose Invoicera to automate Invoicing?
Ans:​ Invoicera is an automated online invoice software. A choice of more than 3 million
users and 60+enterprises for customization, Invoicera has been impacting business
processes for 15 years. Invoicera incorporates automation with invoice & payments
management, staff management, time tracking, and approval process to streamline
workflow.
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