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Debit Note - Definition & Advantages of Debit Note

What is a Debit Note?

A debit note is a letter a seller delivers to a buyer outlining the buyer's current financial obligations. Debit note is issued by the seller to the buyer to notify them of an increase in the amount payable as a result of a discrepancy in the original invoice. The debit note serves as a legal record of the transaction, and it is used to adjust the accounts payable balance of the buyer. These notes are widely used in business-to-business transactions.

The debit notice could include information about an open invoice or serve as a reminder of the money due. In addition, the communication will include the following:

  1. The full anticipated credit.

  2. A list of the products that were returned.

  3. Their justification for returning the goods.

  4. Unlike invoices, debit notes are written in letters and do not need immediate payment. This is valid if a debit note informs a buyer of upcoming obligations based on amounts that have not been appropriately invoiced.

When is a Debit Note Used?

A debit note can be used when there is a change in the original invoice due to an overcharge or an undercharge on the original invoice. It is also used in case there is damage to goods during transit or when goods are returned due to a defect or other issues.

How does Debit Note Work?

A debit note is a confirmation document sent by a buyer while returning the goods or services to a seller. Buyers send this memo if all or a percentage of goods have defects. A debit note is also sent when the buyer is charged extra for the goods. To issue a debit note, the seller must include specific information, such as the buyer's name and address, the date of the original invoice, the reason for the debit note, and the new total amount owed. 

1. Debt reduction for the seller

Debit notes allow you to ask for relief or a reduction in the amount owing to the seller for already-shipped items. Therefore, this letter's charge will be less than what was first agreed upon. This drop typically occurs when the seller is required to return products purchased in the form of receivables.

2. A decrease in the product price

The second function of the debit note is to request a price reduction on a specific good. This price adjustment may occur if a product is no longer offered for sale or if both parties agree on other issues. It would help if you, therefore, changed the cost of your product to foster greater transparency. Both the vendor and the customer gain from this. This happens because the product becomes more commercially viable, enabling buyers to obtain a more affordable price.

3. Adjusting the number of items

As previously mentioned, this kind of message is used to request changes to the number of goods the customer and seller agreed upon. As an illustration, the consumer received too few products. As a result, this warning is used to display on billing to stop the occurrence of such problems.

A debit note's components: There is no fixed format for a debit note prescribed by law. However, some fields must be mandatorily present

  1. Header description stating the document is a debit note

  2. Name, address, contact details and GSTIN of the recipient

  3. Name, address, contact details and GSTIN of the supplier, serial number of the debit note

  4. Invoice reference number against which debit note is issued

  5. Information on the number of products debited

  6. The class of items debited

  7. Purchasing cost per unit

  8. The entire amount deducted for products.

  9. Date the debit note was created

  10. Verification of the document in the form of signature

The benefits of debit notes

  1. The debit notebook is updated with the relevant information (this is not one of the account books). The supplier will receive the top copy and the returned products, while the duplicate is kept in the debit notebook. As a result, the trader holds a record of all the products they have returned and the recipients of those commodities.

  2. When the supplier sends the credit note, it is compared to the copied debit note that is still kept in the debit notebook.

  3. The debit notebook must be frequently reviewed to confirm that all returned items have been accounted for and credit notes have been received.

  4. If the items are returned to a local source, the debit notebook might be delivered by messenger. The provider to whom the products are returned might sign in the book for the messenger. In other situations, the merchant must rely on the carrier's signature on the consignment note (for instance, the SAR). In both cases, the signature proves that the products were returned.

  5. The supplier keeps the original debit note. This turns into the supplier's record from which a credit note might be issued.