A debit note is one of the most important documents in the supply chain. It is generated and sent by the customer to the seller in order to request a return of the paid amount. Although a simple document, creating a debit note can be a bit tricky. This is what this guide is formulated for. Here, you’ll learn everything regarding a debit note, its importance and how to create it!
A debit note is an evidential commercial document issued by the buyer to the supplier.
What is a Debit Note?
A debit note or a debit memo is a commercial document that is sent by the customer to the supplier in order to request a refund of prepaid funds due to situations like receiving damaged or incorrect goods, cancelling the purchase, etc.
A debit note works quite similarly to a credit note. The only difference is that it is issued by the customer. Also, it must be issued before a credit note issued by the supplier’s side. In simple words, a debit note can be seen as a request for a credit note by the buyer from the seller. This piece of document acts as evidence that proves a purchase return in the records of a buyer.
When Should A Debit Note Be Issued?
As a buyer, if you receive goods that you aren’t satisfied with and want to return them back to the seller, you can create a debit note and issue the same for claiming a refund.
Note that, there must be a valid reason behind sending a debit note. You can’t and shouldn’t simply issue a debit note just because you’ve changed your mind about the purchase.
There can be various valid reasons for which a debit note can be sent. Some of these circumstances are as follows :
- Goods you’ve received are not in a good shape, they are damaged or incorrect.
- You’re overcharged by the supplier i.e the price supplier has demanded is more than the original price of the goods.
- The quantity of goods is incorrect or you’re undercharged.
How Does A Debit Note Work?
The method of generating and issuing a debit note is much similar to the process of a credit note. It is one of the must-haves in your accounting records and acts as a formal proof document. Below is an example where a debit note should be issued :
Company X purchases a fixed quantity of goods worth $500 from another company Y.
After receiving the order, Company X finds out that the goods are defective or damaged. Now, X wants to return these goods to Y.
Company X generates a debit note that contains the complete information of the purchase including the amount and taxes associated with it.
When company Y receives this debit note, they review it, approve it and acknowledge it by sending a credit note as an evidential document for reimbursement to X.
In addition, there can also be instances where a debit note can be issued by a seller to the buyer. Here is an example for the same :
Supplier company A ships products worth $500 to buyer company B.
Due to some confusion, the company sent an incorrect invoice charging only $400.
Upon realising the mistake, supplier company A issued a debit note to buyer company B for resolving the difference of $100 and making the necessary corrections.
How to Create A Debit Note?
Just like a credit note, the format of a debit note is very important to follow. Today, there are many amazing tools and software that allows you to create a debit note right from your mobile phone in minutes. If you want to create a debit note in the quickest and simplest manner, then click the below link: https://mybillbook.in/blog/debit-note-guide/
No matter when and where you want to create your debit note, you must follow a certain format that makes the document easily understandable. Here is a sample format of a debit note :
- Header – The document should be titled as a “Debit Note”.
- Serial Number – A unique identification number should be given to each debit note. Further, there should be no more than 16 characters and should have a combination of numbers, letters and special symbols (@,#,&,*, etc)
- Date – The date on which the document is issued.
- Invoice Details – The invoice number and the complete details should be mentioned to keep the transaction clear and free from confusion.
- Seller Details – Name, Phone Number, Address and the GST number
- Total Amount – The total taxable amount of goods plus the rate of tax along with tax amount debited or credited to the buyer.
- Signature – The digital signature of the supplier.
So, this is how a debit note is created and issued by the buyer. As discussed above, there are many software and applications that can help you create a debit note in a matter of minutes, all you need to do is find the right invoicing software or application.