Legal Definitions - credit memorandum

A credit memorandum is a formal document issued by a seller to a buyer. Its purpose is to confirm that the seller has reduced the amount of money the buyer owes them. This reduction typically occurs due to specific circumstances, such as when a buyer returns goods, when there's a billing error, or when the seller grants a price adjustment or allowance for damaged items. Essentially, it acts as official proof that the buyer's outstanding balance with the seller has been lowered.

• Example 1: Returned Merchandise

  A local electronics store orders 100 units of a new smart speaker from a distributor. After a few weeks, 15 units remain unsold, and the store decides to return them to the distributor according to their return policy. The distributor would then issue a credit memorandum to the electronics store. This document would officially reduce the amount the electronics store owes the distributor by the value of the 15 returned speakers, confirming that the store no longer has a financial obligation for those items.

• Example 2: Billing Error

  A marketing agency receives an invoice from its software provider for a monthly subscription. Upon review, the agency realizes they were accidentally charged for two user licenses instead of the single license they actually use. After contacting the software provider, the provider investigates and confirms the overcharge. The software provider would then issue a credit memorandum to the marketing agency for the cost of the extra, incorrectly billed license, thereby reducing the total amount due on the invoice.

• Example 3: Damaged Goods Allowance

  A restaurant chain receives a large shipment of specialty cheeses from a gourmet food supplier. Upon unpacking, the kitchen staff discovers that several wheels of cheese are visibly moldy and unusable. The restaurant contacts the supplier, who agrees to compensate them for the spoiled items. Instead of sending a direct refund, the supplier issues a credit memorandum for the value of the damaged cheese. This document reduces the amount the restaurant owes on its next invoice or for future purchases, effectively providing compensation for the unusable goods.