What Is a Debit Note?

A debit note is a document used by a vendor to inform the buyer of current debt obligations. The debit note can provide information regarding an upcoming invoice or serve as a reminder for funds currently due. Debit notes can also be created by buyers when returning goods received on credit. For returned items, notes will include the total anticipated credit, an inventory of the returned items, and the reason for their return.

How a Debit Note Works

A debit note is generally used in business-to-business transactions. These transactions often involve an extension of credit, which means that a vendor sends a shipment of goods to a company before the buyer's cost is paid.

Debit notes tell the buyer that the seller has debited their account. Although real goods change hands, real money is not transferred until an actual invoice is issued. Debits and credits are instead logged in an accounting system to track shipped inventories and payments owed.

Debit notes are separate from invoices because they are generally formatted as letters, and they may not require immediate payment. This is true when the debit note is used to inform the buyer of upcoming debt obligations based on amounts that have yet to be officially invoiced.

Special Considerations

Some companies use debit notes to bill for items that are not their primary business. For example, if a company sublets some of its warehouse space, it might issue a debit note for the rent. Debit notes might also be used to correct mistakes in invoices. If a client is underbilled on an invoice, for example, a debit note might be issued for the missing amount that should have been billed.

In addition to the letter format, debit notes may also be provided as shipping receipts with received goods. While the amount due may be noted, payment is not expected until an official invoice is sent to the buyer. This can allow a buyer the opportunity to return goods, if necessary, without first having to provide payment.

Some debit notes may be sent as informational postcards that only serve as a reminder of the debt the buyer has accrued. This can be helpful in cases where the seller is not certain if an original invoice was received or reviewed. The postcard can also contain information on how the debt can be settled, such as relevant contact information.

Debit Note Features

Debit notes may look different based on the issuer. But, there are a few distinct components that every vendor includes on these documents. The following is a list of some of the features of a debit note:

• Date
• Seller's name and address
• Buyer's name and address
• Name and description of goods
• Price of goods
• Total cost of the order
  

Debit Note vs. Credit Note

A credit note is different than a debit note. A credit note is issued by a supplier or seller to their customer. This document advises the customer that there is a credit applied to their account. Vendors may issue credit notes if:

• There was an error in the invoice, such as a mistake in pricing
• The order was changed
• Goods were damaged prior to or during delivery
• The customer rejects the order

Credit notes may be used to cover all or part of the value of the bill. However, the credit note is not a refund. It indicates that the customer's account has a credit on file. This credit can be used to offset the cost of future purchases.

The Bottom Line

Vendors and buyers commonly create and submit documents relating to the exchange of goods and services. A debit note is one document that both parties can send to one another. Debit notes indicate that a buyer has a payment pending on an order or it can alert a vendor that the buyer is making an adjustment on something they ordered. But don't confuse this with an invoice, which is a bill of sale that has information about the nature of the goods sold, their price, and the total amount of the order.