A debit memo—short for debit memorandum—is an accounting document issued to increase the amount owed on a transaction. It is an adjustment to an original invoice, signaling that a buyer owes additional money to a seller due to an undercharge, late fee, pricing adjustment, or extra services. Whether a business issues one to collect missing revenue or receives one from a supplier, this document ensures financial records accurately reflect outstanding balances.
Managing billing adjustments prevents costly billing errors that can affect profit margins. In a trade payment study by Atradius, 23% of US B2B businesses reported invoice disputes as a direct cause of payment delays, contributing to 43% of total credit sales going past due. If you’re engaged in business-to-business transactions, tracking your debit and credit adjustments maintains an accurate accounting system and prevents discrepancies during financial auditing.
Learn about debit memos, how they differ from invoices, refunds, and credit memos, and how to process these adjustments in your daily accounting and Shopify order workflows.
What is a debit memo?
A debit memo or debit note is a formal notification that a seller issues to a buyer—or that a bank issues to an account holder—to adjust an account balance upward. In double-entry bookkeeping, a debit memo increases the balance of accounts receivable for a seller (showing that a customer owes more money) and increases accounts payable for a buyer (showing that the company owes additional funds).
When a company sends a debit memo, they update the buyer’s account without needing to send a completely new invoice. When a buyer receives this documentation, they update their financial records and schedule a supplemental payment to settle the outstanding balance.
Beyond seller-buyer relationships, financial institutions also issue internal debit memos. A bank uses a debit memorandum to reduce a customer’s account balance directly on a bank statement for internal charges such as bank fees, service charges, non-sufficient funds (NSF) checks, or monthly account maintenance. Rather than altering a closed sales record or issuing a new original invoice number, the debit memo is tied to the initial transaction. This keeps the audit trail intact.
Credit memos vs. debit memos
A credit memo is the inverse of a debit memo. When businesses issue credit memos, they lower the amount a customer must pay.
For example, when a customer returns goods that arrived damaged, the seller issues a credit memo to clear the charge. If the customer already settled the original invoice, the credit memo reduces their future balance or generates a cash refund.
Businesses frequently encounter these opposing mechanisms during daily operations. Common scenarios requiring a debit memo include:
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Correcting billing errors. Fixing an incorrect pricing calculation or an incorrect discount applied to an original invoice.
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Making contractual changes. Adding freight charges, fuel surcharges, or extra handling fees after shipping an order.
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Enforcing payment terms. Charging late fees or interest charges when a customer misses agreed-upon payment terms.
Conversely, issuing credit memos is necessary when:
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Handling returns and damaged inventory. Issuing a partial credit or full adjustment when a buyer receives a defective product
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Offering price protection or rebates. Applying a discount retroactively if market prices drop after contract signing
Understanding the key differences between a credit and debit memo helps businesses maintain clean accounting records and clear communication with trading partners. Here’s a breakdown of how they compare:
| Feature | Debit memo | Credit memo |
| Primary effect | Increases accounts receivable (or increases amount owed) | Reduces accounts receivable (or decreases amount owed) |
| Direction of funds | Customer or buyer owes additional money | Customer receives a credit or refund |
| Common triggers | Pricing errors, post-purchase price adjustments, added bank fees, interest charges | Customer returns goods, damaged goods, volume discounts, partial credit |
| Impact on buyer | Increases the customer’s outstanding balance | Creates a credit balance applied toward future purchases or a direct refund |
How debit memorandums work
- Identify the billing discrepancy
- Issue the debit memo
- Record the entry in your accounting system
- Settle the balance
Follow these steps to create and process debit memos:
1. Identify the billing discrepancy
The process begins when an accounting team, sales rep, or audit reviewer discovers an error on a completed transaction. This could stem from an incorrect unit price, omitted freight charges, or a math error on the original invoice. Compare the original invoice against purchase orders, shipping manifests, and sales contracts to confirm the exact dollar amount of the undercharge.
2. Issue the debit memo
The seller creates the debit memorandum. To ensure clarity during financial auditing, include the following transaction details:
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The phrase “debit memo” or “debit note” printed at the top
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A unique debit memo reference number
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The original invoice number and date
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The customer name, billing address, and account details
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An itemized description of the adjustment reason (e.g., “Undercharge correction on Item 2—unit price adjusted from $15 to $18)
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The net balance due, updated tax calculations, and payment instructions under established payment terms
3. Record the entry in your accounting system
Once created, log the adjustment in your accounting software. For the seller, the debit memo increases the amount in the customer’s account under accounts receivable and records the corresponding revenue or expense recovery. For the buyer, receiving the debit note increases their accounts payable liability and records the added expense. Timely issuance ensures both parties have identical numbers on their balance sheets, preserving overall bank reconciliation accuracy.
4. Settle the balance
The buyer reviews the debit memo against their receiving logs. The buyer approves the adjustment and makes the payment according to the listed terms. For businesses on the receiving end of vendor debit adjustments, managing these incoming line items manually can take time and potentially lead to administrative errors.
How debit memos work for Shopify stores
When businesses using Shopify need to lower an order amount due to returns or damage, they can use the platform’s native refund and return tools. Processing a return generates the functional equivalent of a credit memo, adjusting tax records, updating inventory, and reducing the total invoiced amount.
If your business undercharges a customer on an open B2B draft order—or needs to collect added fees post-purchase—you can edit the order. Adding items or adjusting custom line-item prices increases the order total. You can then use the “Send invoice for balance” function, which acts as a debit memo by notifying the customer of the updated outstanding balance and providing a direct link to pay the difference.
When you receive a debit memo, Shopify Bill Pay simplifies the settlement step by aggregating vendor bills and incoming balance adjustments and handling them via bank transfer, credit card, or Shopify Balance. It also automatically updates records on accounting software like QuickBooks to keep all financial statements balanced.
What is a debit memo FAQ
When should a business issue a debit memo?
A business should issue a debit memo whenever it needs to increase the amount owed by a customer after sending the original invoice. Common triggers include finding a pricing mistake on a line item, discovering unbilled shipping or handling costs, applying late payment fees, or making post-purchase price adjustments based on updated contractual agreements. Using a debit memo fixes the error cleanly without voiding or reissuing the original transaction record.
Why would a supplier send a debit memo?
A supplier sends a debit memo to notify a buyer that they owe additional money on a previously billed transaction. This occurs when the supplier identifies pricing errors on the initial bill, added shipping charges incurred during transit, or short payments on previous invoices. Receiving a debit note signals that your business must update its accounts payable balance to maintain accurate financial records and settle the remaining account balance.
Is a debit memo the same as an invoice?
No, a debit memo is not the same as an invoice, though both request payment. An invoice initiates the original charge for goods or services rendered. A debit memo acts as a modification to an existing invoice, referencing that initial document number to explain why the customer owes additional funds. While an invoice creates an entirely new sales record, a debit memo adjusts an existing record within your accounting system.
