What is the Use of Credit Notes?

What is the Use of Credit Notes

Credit notes are one of the common documents that business owners (Also see Tips to Become Intelligent Business Owners) would use in their business operation (Also see What Should You Do Before You Start Your Own Business?). The supplier of goods or services will issue a credit note to the buyer if the buyer returns that goods or service to him. This document serves to inform the buyer that the supplier has credited the buyer’s account in the supplier’s books of accounts.

As the issuance of credit note often affect the accounts receivable or accounts payable of the company, business owners need to be very careful when they are handling these documents and the associated transactions. The changes in the amount of sales and purchases can be quite confusing sometimes. If business owners (Also see Compliance Tips New Business Owners Need to Know) are not sure that they can handle this well, engaging an accounting firm in Johor Bahru can be one of the best choices. The professional accountants can lend them a helping hand on this matter, and they can have peace of mind without having to worry about the accuracy of the accounting records.

The supplier will not send credit notes to the buyers for no reason. Usually, there will be an event that triggers this. Most of the time, it is caused by the return of goods by the buyer to the supplier. If this happens, the buyer will send a debit note to the supplier. Then, the supplier will approve the debit note before sending a credit note back to the buyer. The credit note states that the supplier will credit the buyer in the supplier’s books of accounts.

Although the supplier issues the credit note just to respond to the debit note that the buyer has sent to him, the issuance of the credit note, in fact, is not a good thing to the seller. This is because the issuance of credit note indicates that the amount of sales of the supplier will reduce.

However, the suppliers will still issue a credit note to the buyer when necessary. This is because regardless of the size and scale of the company, it needs a good reputation for it to sustain and grow. Issuing the credit note is a way to protect the reputation of the company (Also see Business Expenses That A Company Should Always Monitor) as this means that the company will take back the defective or faulty products that it has sent to the buyer. Also, the buyer can request for something from the supplier as a compensation for the returned amount. Doing so enhances the relationship between the buyer and the supplier, and both parties will be able to collaborate for a long time and help each other to develop and grow.

An interesting fact is that the buyer may issue a credit note to the supplier too. This will only take place under one condition, that is when the seller has undercharged the buyer. This is the only condition that causes a buyer to send a credit note to the seller.

Contact Us!