What Is a Debit Note?
Debit Note

"Debit" and "credit" describe the two sides of an account. A debit note increases what one side records as owed; a credit note reduces it. In day-to-day UK business, though, the debit note has a narrower, practical job: it is how a buyer tells a supplier, formally and in writing, that an invoice needs to come down, and asks for the credit. Less often, a supplier uses one to record a further amount due.

How a debit note works

Imagine a café receives 50 chairs but 5 arrive damaged and are sent back. The supplier's invoice is for all 50. The café's bookkeeper issues a debit note to the supplier: 5 chairs returned, £300 to be credited, referring to the invoice number. The café records the reduction in its own books straight away, so its records show what it actually expects to pay. The supplier checks the return and issues a credit note for £300. That credit note is what formally adjusts the invoice, and for a VAT-registered supplier, what adjusts the VAT.

Debit note and credit note compared

What a debit note should contain

There is no statutory list for a buyer's debit note, but a useful one includes:

• the words "Debit note" and its own reference number
• the date
• the buyer's and supplier's names and addresses
• the invoice it relates to, by number and date
• what is being adjusted and why: returned goods, shortage, price difference
• quantities and amounts
• VAT, if the original invoice included VAT, shown for information
• the total adjustment requested

Suppliers and debit notes

Some suppliers use a debit note to charge an extra amount after invoicing, such as an agreed price increase or an extra item. In UK practice, a further invoice is usually clearer: it is the document a customer's accounts system is built to approve and pay, and for a VAT-registered supplier it is a VAT invoice the customer can reclaim from. If you undercharged, the guide on how to correct an invoice sets out the options: a further invoice for the difference, or a full credit and reissue.

Debit notes and VAT

A buyer's debit note does not, on its own, change the VAT on the supply. The VAT adjustment comes from the supplier's credit note, which must meet the VAT Notice 700 rules for a valid credit note: its own number and date, both parties' details, the supplier's VAT number, a description, the amounts, the VAT credited in sterling and the original invoice's number and date. So if you are a VAT-registered buyer and send a debit note, wait for the supplier's credit note before reducing the VAT you reclaim, or agree the treatment with the supplier.

When to send a debit note

• Goods arrive damaged, faulty or in the wrong quantity, and you return or reject them.
• The invoice price does not match the agreed price or the purchase order.
• A discount you agreed has not been applied.
• You have been charged for something you did not order.

In each case, the debit note puts the problem in writing, with the numbers, so the supplier can check and respond. It is also useful evidence if the matter becomes a dispute; see invoice disputes.

Debit notes in your records

If you are the buyer, your records should show the invoice, the debit note you sent, and the supplier's credit note in response. Until the credit note arrives, the debit note shows why you are not paying the full invoice. Once it arrives, the three documents together explain the final cost. If you are the supplier, record the customer's debit note as a query against the invoice, and respond with a credit note if you agree, or an explanation if you do not.

A worked example

A florist receives an invoice for 200 stems of roses at £1.20 a stem, £240 plus VAT. Forty stems arrive wilted. The florist sends debit note DN-0007: 40 stems rejected on delivery, £48 plus £9.60 VAT requested, referring to the supplier's invoice number and date, with a photo attached. The supplier agrees and issues credit note CN-0291 for £48 plus £9.60 VAT. The florist pays £230.40 instead of £288, and reclaims VAT only on the reduced amount.

Responding to a debit note as a supplier

When a customer sends you a debit note, treat it as a query against your invoice, not as a payment instruction. Check the facts: were the goods returned, was there a shortage, does the price match the agreement? If the customer is right, issue a credit note promptly for the amount agreed, referring to both your invoice and their debit note, so everyone's records line up. If you disagree, reply in writing with your reasons and the evidence, such as a signed delivery note or the accepted quote. Leaving a debit note unanswered is the worst option: the customer will short-pay your invoice and your records will not match theirs.

If you are VAT registered, your credit note must follow the VAT Notice 700 rules, and where you refund money, be issued within 14 days of the refund. The VAT calculator works out the VAT to credit.

Debit notes and late payment

A debit note can explain why a buyer has not paid the full invoice. If the query is genuine, the disputed part is not yet owed, and the supplier should resolve it quickly. The undisputed part, though, is still due on the original date. As a buyer, pay the undisputed amount on time and say so; as a supplier, chase it. For business customers, statutory interest can apply to amounts that are owed and late; see charging interest on late payments.

How accounting software handles debit notes

Some small-business accounting packages have a "supplier credit" or "debit note" function on the purchases side, which lets a buyer record the reduction they expect while waiting for the supplier's credit note. Others simply record the supplier's credit note when it arrives. Either way works, as long as the final records show the invoice, the credit and the net amount paid. On the sales side, most UK packages expect suppliers to use credit notes and further invoices rather than debit notes.

Why the terms confuse people

In bookkeeping, every transaction has a debit side and a credit side, and in some countries debit notes are standard supplier documents. That is why the term shows up in accounting software and in dealings with overseas partners. In most UK small-business dealings, simple rules work best: suppliers reduce invoices with credit notes and increase them with further invoices; buyers use debit notes, or a simple email, to ask for a credit.

Numbering and keeping debit notes

Give debit notes their own series, such as DN-0001, so they are never confused with invoices or credit notes. The invoice number generator can set up any prefix. Keep them with the invoices and credit notes they relate to, for as long as your other business records.

Related terms

A debit note usually leads to a credit note. Both relate to an invoice identified by its invoice number. For how a buyer's order is set up in the first place, see purchase order, and for what a supplier's payment covers, see remittance advice.

Common mistakes

• Treating a debit note as if it settles the matter. Until the supplier agrees and issues a credit note, it is a request.
• Reducing the VAT reclaim before the credit note arrives without agreeing it with the supplier.
• Sending a debit note with no invoice reference. The supplier cannot match it.
• Suppliers using debit notes to bill extra. A further invoice is clearer for the customer, and it is the document a VAT-registered customer needs to reclaim the extra VAT.
• Letting a debit note sit unanswered. Both sides' records drift apart and the invoice is short-paid.

The short version

If you are buying and an invoice is too high, send a debit note or a clear email asking for a credit, quote the invoice number, and pay what is undisputed on time. If you are selling and a customer asks for a credit, answer with a credit note or your reasons, promptly. If you undercharged, send a further invoice rather than a debit note. Keep every document together, and your records will always explain the final price.