What is Debit Note? | Meaning, Examples & Templates

What is a debit note?

A debit note is a commercial document issued by a buyer or importer to a seller or exporter. This document informs them of the discrepancy between the invoice and the delivery. In the case of overcharged goods and services, the debit note will state the reason for the overcharge and propose a refund of the difference. The buyer may also request that future invoices reflect the correct price in some cases.

A seller can also issue a debit note to a buyer, informing them of a discrepancy between the invoice and the delivery. Particularly when the buyer returns defective goods or requests a price correction because the seller made a mistake. A debit note would serve as documentation of the credit owed to the buyer.

Debit notes are not always required, and in many cases, buyers and sellers can reach an agreement without issuing one. However, using a debit note can clarify and avoid misunderstandings later on. Additionally, some industries (such as banking and finance) are required to issue debit notes under certain situations.

It is important that debit notes should be retained for six years from the issue date.


What information should be included in a debit note?

A debit note should include the following information:

  1. The date of the original transaction
  2. The debit note number and date
  3. The name and address of the supplier
  4. The name and address of the customer
  5. A description of the goods or services that were invoiced
  6. The original invoice number and date
  7. A description of the goods or services supplied.
  8. The reason for issuing the debit not
  9. The amount of the debit note
  10. The signature of the person issuing the debit note (seller)

A debit note is typically used in business-to-business transactions. In some cases, a debit note may be used in transactions between a business and an individual consumer.

Here’s what the debit note template actually looks like.

Debit Notes are not legally required in India (they are optional documents)

A debit note is not a mandatory document, but it can help protect the buyer's rights. Debit notes can also help avoid disputes between the buyer and the seller. Depending on the transaction terms, the seller may issue debit notes to the buyer or the buyer to the seller.

Most Common Use Cases for Debit Notes

There are various situations in which a debit note may be issued. Here are some common reasons for issuing debit notes include:

  • The seller made a mistake on the original invoice. When the taxable value or the tax charged in the invoice is incorrect
  • When there is a discrepancy in the quality or quantity of goods received
  • When the goods supplied are returned by the buyer
  • When there are errors in the billing or invoicing process
  • When payments have been made twice for the same invoice
  • The buyer has returned damaged goods. The goods or services were not delivered as promised.
  • The buyer believes that they have been invoiced for the wrong amount.
  • When the buyer cancels the order before delivery
  • When the buyer refuses to take delivery of the goods
  • When there are differences in the rates charged for the same goods or services
  • When the goods or services received are not as per the specifications mentioned in the contract
  • When the delivery of the goods or services is delayed
  • When there is a change in the GST rate applicable on the goods or services

Alternate forms of debit notes

The types of documents listed below are similar to the debit note but non-identical. The thing is that they are used in different cases, but still the fields are mostly the same:

- Debit note

- Credit note

- Sales return

- Purchase return

When to issue a debit note?

A debit note is issued when a discrepancy in an invoice or a product delivered is not as per the specifications mentioned in the purchase order. In simple terms, it allows you to make adjustments to an invoice.

Debit Notes in Business-to-Business Transactions

Debit notes can be issued iissued for both B2B and B2C transactions.

The debit note proves that a business made a legitimate debit entry when dealing with another company. The purchaser may need to validate the reimbursement amount after returning materials to a supplier. An accounting transaction is reflected in a debit note issued by the purchaser.

A business might give a debit note in response to receiving a credit note. Debit notes may be issued when an error is discovered in a sale, purchase, or loan invoice.

A debit note states one business has taken financial action due to dealing with another company.

Business-to-business transactions use both debit notes and credit notes; All notes are dated and include:

  • A serial number,
  • Description of the transaction,
  • Details of the return,
  • The signatures of the people involved.

Debit notes, debit memos, debit receipts, and invoices are all similar. They are legitimate documents that show financial transactions between businesses.

Debit Receipts

The terms "debit receipt" and "debit note" can sometimes be confusing. A debit receipt refers to the written records that show a customer owes money to an organization. At other times, a debit receipt describes a statement about what a customer owes. In B2B transactions people rarely use the term debit receipt.

Invoices

Debit notes and debit receipts are very similar to invoices. The main difference is that invoices always show a sale. At the same time, debit notes and debit receipts reflect corrections or returns on completed transactions.

As an alternative to traditional invoices, debit notes can also be used when goods or services outside the scope of regular business are provided.

Transactions between businesses are typically conducted through an extension of credit. This is whereby a vendor ships a product to a company before getting paid and then bills the company after receiving the shipment. These transactions are tracked through debits and credits in accounting.

Why Do We need Debit Notes in B2B transactions in India?

1. A company issues a debit note to another company to adjust the invoice for damaged goods during shipping.

2. A company issues a debit note to another company to adjust the invoice for goods not as described in the original invoice.

3. A company issues a debit note to another company to refund the cost of goods that were returned.

Debit notes from buyers

A debit note, also famous for a debit memo, is issued from a buyer to their seller. It is used to request a refund in cases of incorrect or damaged goods, purchase cancellation, or other specified circumstances. A debit note is similar to a credit note, except the buyer issues it.

Debit notes from sellers

Debit notes from sellers are issued to notify buyers of current debt obligations.

Debit note vs credit note: what's the difference?

The main difference between a credit note and a debit note is who issues the document. A buyer issues a debit note to a seller to adjust the price of goods or services already been supplied, while a seller issues a credit note to the buyer to confirm that the purchase return is accepted.

How to Make a Debit Note

1. Include all the required information in the debit note.

2. Make sure that the debit note is correctly dated. The date should be the date on which the debit note is issued, not the date of the original invoice.

3. Ensure that the debit note includes the original invoice number and date. This will help the recipient to identify the invoice that is being returned.

4. Include the amount that is being debited. This should be the total amount of the invoice, including any taxes.

5. Sign the debit note. The signature should be that of the issuer, not the recipient.

6. Automate the debit note generation process using a software system. Click here to download our Kernel Template for easy debit note generation.

What is the difference between a debit note and a standard invoice?

A debit note is a document that the seller issues to a buyer to adjust the price of goods or services already supplied. On the other hand, a standard invoice is a document that a seller issues to a buyer to purchase goods or services.

What is the difference between debit notes and purchase returns in India?

The main difference between a debit note and a purchase return is that a seller issues a debit note to a buyer to adjust the price of goods or services that have already been supplied, while a purchase return is issued by a buyer to a seller to return goods that have already been delivered.

Both debit notes and purchase returns are used to correct invoice errors. Both debit notes and purchase returns can be issued for incorrect quantities, incorrect prices, or damaged goods.

FAQs on debit notes in India?

  1. What is a debit note?

A debit note is a document issued by a seller to inform the buyer that they have been debited for an invoice or transaction. The debit note will typically include the reason for the debit and the amount that has been debited.

  1. How is a debit note different from an invoice?

A seller issues an invoice to request payment from a buyer for goods or services that have been provided. On the other hand, a debit note is issued after an invoice has already been paid. It informs the buyer of the money they owe due to discrepancies or adjustments. In other words, an invoice represents money owed to the seller, while a debit note represents money owed by the buyer back to the seller.

2. What are the different types of debit notes?

There are four main types of debit notes:

1. A debit note issued by a buyer to a seller about goods or services supplied. This type of debit note is also known as a 'purchase return'.

2. A debit note issued by a seller to a buyer about goods or services supplied. This type of debit note is also known as a 'sales return'.

3. A debit note issued by a company to another company relates to an inter-company transaction.

4. A debit note issued by one individual to another individual related to any transaction between them.

3. When should I issue a debit note?

There are two main situations in which you would issue a debit note:

1. When you receive goods or services that do not meet the agreed specifications, you wish to request a refund or credit from the supplier.

2. When you have been invoiced for goods or services that were not supplied, you wish to request a refund or credit from the supplier.

4. How do I issue a debit note?

There are two main ways to issue a debit note:

1. You can send the debit note to the supplier by post, e-mail or fax.

2. You can include the debit note on your next invoice to the supplier.

5. Can I cancel or void a debit note?

Yes, you can cancel or void a debit note in case of an error. However, you should always check with your accountant or financial advisor before doing so.

6. How long should I retain debit notes?

You should retain debit notes for at least six years if needed for tax or auditing purposes.

7. What is the difference between a debit note and a credit note?

A debit note is issued when you receive goods or services which do not meet the agreed specifications. This is when you have been invoiced for goods or services which were not supplied. A credit note is issued when you return goods to a supplier.