If you’ve ever returned a product in Canada, you may have received something known as a credit memo. And if you’re a business owner, you may see a credit memo on your bank statements. But what exactly is a credit memo and why did you get one?
In this piece, we’ll provide an overview of credit memos in Canada to help you better understand what you have received if you got one.
What is a Credit Memo in Canada?
As mentioned above, a credit memo is something that you may find from time to time on your bank statements (if you are a business owner) or often as a physical copy (if you are a buyer).
If you have a credit memo, this is something that has been sent to you by a seller. They’re often given out by sellers when a product is returned.
Rather than refunding the money, some sellers prefer to offer their buyers a store credit. This credit can then be used to reduce the cost of another purchase or to eliminate the cost altogether.
On the other hand, a business/seller might find a Credit Memo on their bank statement in any of the following scenarios:
- Interest earned for having money on your chequing account
- A refund of a bank charge
What information is found on a credit memo?
Credit memos often help businesses keep track of their inventory. In order to do this, they contain a significant amount of information. Credit memos will include the terms of payment and billing, an address for shipping, item names, prices, and quantities, and the date of the purchase. Most credit memos will also contain the PO (or Purchase Order) number.
When is a credit memo issued?
There are several different scenarios in which a credit memo may be issued by a seller. The most common case is a return of a product, but credit memos may also be issued if a product was defective or damaged, a clerical error was made, or if the customer made an overpayment.
What is the difference between a credit memo and a refund?
At first glance, a credit memo and a refund may sound very similar. In both cases, the buyer receives something from the seller. The main difference, however, is that when you receive a refund, you receive money back from the seller.
When you receive a credit memo, you don’t actually get any money back, you simply get credit towards your next purchase.
Let’s imagine you were shopping at Walmart. Walmart generally offers refunds for their products. If you return a product, you simply sign off and your money is returned to you.
Some smaller businesses, however, prefer to offer credits. When you do a return with these businesses, you don’t get your money back. Rather, you get credit on your account so that the next time you shop there, money will be deducted from your total bill.
What is the difference between a credit memo and a debit memo?
While credit memos reduce the amount of money that a customer owes, debit memos increase the amount. The most common need to apply a debit memo to an account is undercharging of an account.
If this happens by mistake, the customer may owe extra money. This can be paid off directly or issued through a debit memo on their next purchase.
In conclusion, credit memos are designed to provide buyers with compensation in the form of shopping credit.
If you are a business owner who has issued credits, this will be something that you need to take into account when you file for your taxes. Luckily, a certified tax accountant will be able to help take this stress off of your shoulders, making the accounting process a smooth and effortless one.