Debit Memorandum

A debit memorandum ("debit memo" for short) is a document that records adjustments for three general cases: reduction in a bank customer's account balance, under-billing of goods or services and an internal offset to a minor credit balance in a customer account.

In retail banking, a debit memorandum is given to an account holder indicating that an account balance has been decreased as a result of a reason other than a cash withdrawal or cashed check. Debit memos can arise as a result of bank service charges or bounced check fees. The memos are typically sent out to bank customers along with their monthly bank statements.

In business-to-business transactions, a debit memo is issued as an adjustment procedure following an inadvertent under-billing of goods or services provided to a customer. For instance, if ABC Co. fills an order for XYZ Inc. and invoices the customer in an amount that is short of the agreed amount, ABC Co. will issue a debit memo to XYZ Inc. to indicate and explain the balance due.

Within a firm, a debit memo can be created to offset a credit balance that exists in a customer account. If a customer pays more than an invoiced amount, intentionally or not, the firm can choose to issue a debit memo to offset the credit to eliminate the positive balance. (If the credit balance is considered material, the company would most likely issue a refund to the customer instead of creating a debit memo.)