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Debit memo: what it is and when to issue one

By The AR Agent team · · 6 min read

A debit memo is a document a seller issues to increase the amount a customer owes on an earlier invoice. It is used when the original invoice was too low, for example because of an undercharge, a freight cost left off, or an agreed late fee.

The name comes from the accounting entry. Raising what a customer owes debits accounts receivable, so the document is a "debit memorandum". In banking, the same term has a second meaning: a notice that the bank has taken money out of your account. Both are covered below.

What is a debit memo in accounts receivable?

An invoice says "you owe us this". A credit memo says "you owe us this much less". A debit memo says "you owe us this much more".

Say an invented equipment supplier invoices a customer $3,200 for 20 units at $160. The agreed price was $175, so the invoice was $300 short. Rather than cancelling and reissuing the invoice, the supplier issues a debit memo for $300 that refers to the original invoice. The customer now owes $3,500 in total.

The original invoice stays as it was. Anyone reviewing the account later can see what was billed first, what was added, and why.

When should you issue a debit memo?

The usual reasons:

  • An undercharge. The wrong price, the wrong quantity, or a line left off the invoice.
  • Freight, delivery or other costs. Shipping or handling the customer agreed to pay, but that was not known when the invoice went out.
  • A late fee or interest. If your contract or terms allow a late fee, some businesses bill it on a debit memo rather than a new invoice. What you can charge depends on your contract and, in the US, on state law. Our guide to late fees on invoices covers how to set this up.
  • Returned payment charges. A customer's check or direct debit bounced and your terms let you pass on the cost.
  • Reversing a credit given in error. You issued a credit memo that should not have gone out.

As with a credit memo, a debit memo should follow an agreement. Adding a charge the customer did not agree to is likely to start an invoice dispute and delay payment of the original amount as well.

Debit memo vs credit memo vs invoice

Document Effect on what the customer owes Typical use
Invoice Creates a new amount owed A new sale
Debit memo Increases an amount already invoiced Undercharge, freight, late fee
Credit memo Reduces an amount already invoiced Return, overcharge, settled dispute

Debit memo vs credit memo

They are mirror images. A credit memo lowers the balance and credits accounts receivable. A debit memo raises the balance and debits it. Both reference the original invoice and leave it unchanged.

Debit memo vs invoice

A debit memo is a type of supplementary invoice. The difference is the link back. A new invoice stands alone, for a new sale. A debit memo adjusts a sale you have already billed.

Some businesses skip debit memos and issue a fresh invoice for the extra amount. That works, as long as the new invoice says which earlier invoice it relates to and why. Customers' AP teams often process debit memos the same way as invoices, so check whether a customer needs a PO number on it before you send it.

What goes on a debit memo?

A clear debit memo includes:

  • The words "Debit memo" and its own unique number, in a series separate from your invoices
  • The date issued
  • Your business name and contact details
  • The customer's name and address
  • The original invoice number and date it relates to
  • The customer's PO number, if they use one
  • What is being added, with quantity and amount for each line
  • The reason, in a sentence
  • The total added, any sales tax on it, and the due date

The reason and the original invoice reference matter most. Without them, the customer's AP team may not know what to match it to.

Debit memo template

DEBIT MEMO

Debit memo number: [DM-number]
Date: [Date]

From: [Your business name], [Address], [Email]
To: [Customer name], [Address]

Relates to invoice: [Invoice number] dated [Invoice date]
Customer PO number: [PO number]

Description                      Qty    Unit price    Amount
[Item or charge]                 [Qty]  [Price]       [Amount]

Reason: [One sentence, e.g. "Unit price billed at the old rate instead of the agreed rate."]

Subtotal: [Amount]
Sales tax: [Amount]
Total added: [Amount]

Payment due: [Due date]
Payment details: [How to pay]

How does a debit memo affect accounts receivable?

A debit memo increases your accounts receivable balance, because the customer owes you more. The entry is the same shape as an invoice: debit accounts receivable, and credit the account the charge belongs to, such as sales, freight income or late fee income.

For the $300 undercharge above:

Account Debit Credit
Accounts receivable $300
Sales revenue $300

How it shows on the customer's account depends on your software. Some systems add the debit memo to the original invoice's balance. Others treat it as a separate open item with its own due date. Either way, your accounts receivable aging report and any statement of account should show both, so the customer sees the full amount owed.

What is a debit memo in banking?

In banking, a debit memo is a notice from your bank that it has reduced your account balance for something other than a check you wrote. Common examples are service fees, a customer's check that bounced after you deposited it, or other charges.

You will usually see these on your bank statement. Record them in your books when you reconcile the account. If the debit memo is for a customer's bounced check, the customer still owes you: reinstate the invoice and follow it up.

Frequently asked questions

Is a debit memo the same as a debit note?

In practice, yes. "Debit memo" is the common US term. "Debit note" is used in the UK and many other countries.

Does a debit memo need a new due date?

It should state one. Some businesses give the debit memo the same due date as the original invoice. Others give it fresh terms from its own date, which is fairer if the extra charge was your mistake. Whichever you choose, put the date on the document.

Can I charge a late fee with a debit memo?

You can bill a late fee on a debit memo if your contract or payment terms allow one. In the US, the rules on late fees and interest vary by state and by contract, so check both before adding one. Add it after the invoice is overdue, not in advance.

Should I edit the original invoice instead?

Usually not, once it has been sent. Editing an invoice the customer already has creates two versions of one document. A debit memo keeps the original intact and shows exactly what changed. Editing may be fine for a draft that has not gone out.

How The AR Agent handles this

The AR Agent follows up overdue invoices by email using the balances in QuickBooks or Xero, so a debit memo recorded there is followed up like any other open item. It reads what the customer writes back. If they query an added charge, it identifies that as an invoice query and pauses normal chasing so the right person on your team can decide. It does not raise debit memos or add charges itself. Where a reply needs judgement, it asks your team. Every reply, promise and blocker is kept against the customer and the invoice.

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