Much like an invoice, a debit note or debit memo is a business document sent to an individual or business to request payment. However, where an invoice is used to request payment for goods and services provided within your main trade or services, the Debit note is more commonly used to request payment for other income & services that are not the main trade or services.Another common use of the Debit Note is to adjust a short billing in an invoice sent previously.
Examples of When To Use a Debit Note or Debit Memo
Rental Income : Let’s say your main business is buying and selling goods. You sublet a portion of your warehouse to another business and need to charge them rent every month. This rent is your “other income” and not your main trade income. Instead of sending an Invoice, you can send a “Debit Note” to request payment. View Sample.
Commission Income : Say your main business is web development services. You referred one of your customers to another web hosting company for web hosting services. That web hosting company agreed to give you a commission or referral fee. Instead of sending the hosting company an invoice for your commission, a common practice is to send them a Debit Note since the income from this is not from your main trade but “other income.” View Sample.
Interest Income : As in the above two examples, you are not a lender by trade. You loaned another business funds at an agreed interest rate. When interest is due, you can send a Debit Note instead of an Invoice for the interest amount. View Sample .
Adjust an underbilled invoice : You sent an Invoice to a customer for $1010 when it should have been $1100. You in fact underbilled by $90. You can send them a debit note or debit memo for the difference of $90. View Sample
Sample Debit Note Or Debit Memo
Tools For Creating A Debit Note Or Debit Memo
You can use any word processor or spreadsheet program to create a Debit Note or Debit Memo. Or you can use a dedicated Invoice or billing software. It just makes it a lot easier and minimizes human error. The samples in this article were created with our own Invoice or billing software Ezy Invoice.
Note : Above all, nothing beats checking with a good Accountant if unsure.