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Know Credit Note: Definition, Examples, Purpose, and Benefits

Definition and Purpose of Credit Notes

Definition and Purpose of Credit Notes - How important is a credit note to a business? Here's the explanation.Records of transactions and business finances are important in maintaining the business. Now a credit note is one of the evidence that serves as a commercial source document to reduce the invoice price of an item.

This time, will discuss further about credit notes, starting from the meaning, benefits, objectives, and examples. Let's see!

What is a Credit Note?

A credit note is a document that is intentionally made as evidence of a reduction in accounts receivable due to quality problems of an item that must be returned. In addition, when a product experiences a decrease in price, this note is also required to provide a refund to the buyer.

Thus, it can be said that the maker and giver of credit notes are sellers. Usually, the making at once is preceded by a debit note and given in twos as documentation.

In order to avoid misunderstandings, especially when it comes to the cooperation of the two parties, the terms of the credit note must be with the approval of the buyer, and be accompanied by the following components.

  • The column contains product data, including the price and amount to be returned by the seller.
  • Write down the order number as a tool if the amount is sufficient.
  • Must be accompanied by invoice and date and delivery address.
  • There are payment terms in the note for any issues that may arise.

Difference between debit note and credit note

Debit notes and credit notes are two documents that are widely used in businesses and organizations. Although often considered similar, the two have the following differences.

1. Definition of Debit Note and Credit Note

In terms of understanding, the two have differences. A debit note is a document as evidence of a reduction in a reduction caused by a refund or price reduction made by the buyer.

While a credit note is made by the seller of the document for evidence of a reduction in receivables. So, the second note was made by the parties and for different purposes.

2. Functions of Debit Note and Credit Note

From the comparison of the two definitions above, the function of credit notes and debit notes in paying off business is also different. The purpose of a credit note is to reduce receivables that are billed to the buyer. While the debit note is used as the basis for reducing the buyer's effort.

Purpose of Making Credit Notes

This document is not only used as a billing tool, but also for several purposes. Well, the purpose of making a credit note is as follows.

1. Keeping administration in order

A credit note is a tool to recap transactions made by a company in written form. Thus, this data will facilitate the preparation of financial reports and administrative administration according to accounting standards.

2. As Transaction Guarantee for Clients

Notes are security guarantee credits to clients, so business will grow. In addition, potential buyers will perceive that you are very responsible for the company's assessment when it does not meet the criteria.

3. Preventing Unreasonable Financial Statements

All companies are required to make reports and check their business conditions at least once a year. Rarely found, false data and figures whose source cannot be known.

However, this can be overcome because credit notes are able to record and provide proof of transactions for each reduction in receivables. So, the truth of the numbers in the financial statements can be clarified.

Credit Note Benefits

This document is only useful in providing payment security to clients, but also provides benefits for the company. The benefits of a credit note are as follows.

1. Facilitate Administrative Activities

The benefit of recording credit notes is to facilitate administrative activities because transactions made by the company have been recorded systematically.

2. Business Operational Improvement

A credit note is one proof that a company needs to make some improvements to the product. To be able to improve, it needs to be improved. Thus operational activities can also be created in order to create a more efficient system.

3. Maintaining Seller and Buyer Relationship

At first glance, credit notes are a disadvantage for businesses because they reduce their activities, but it is also a good faith to maintain the relationship between the seller and the buyer. In the long run, the company will benefit as consumer confidence increases.

4. Tracking Possible Sales Errors

Sometimes a problem arises at the time of sale or delivery, not caused by the production process. With the creation of credit notes, entrepreneurs can find out at what stage the quality declines so that they can be used as material for further evaluation.

5. conflict

Another benefit of credit notes is as a means of avoiding conflicts between sellers and buyers. The reason is, poor product quality will harm consumers because it does not match their needs. Well, if the company is not able to overcome this and the second party does not want to understand each other, of course the potential for conflict will be wide open.

Mandatory Information on Credit Notes

When creating a credit note, make sure you look for some important information as follows:
  • The date when the credit note was issued.
  • Number and address where the order will be shipped.
  • Terms for making payments.
  • regarding buyer and seller contacts.
  • The reason for making a credit note.
  • An express statement at the top that this is a credit note, not an invoice.

Example of a Credit Note

As a reference for Gramedia News friends, here we provide an example of a credit note.

Thus the discussion about credit notes, important documents that are very useful for a business. Judging from the many benefits, you should use a credit note as an administrative complement if you are really planning to start a business. I hope this article is useful!


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