What It Means (Simple Explanation)
A credit memo reduces what a customer owes you. A debit memo increases it. In SaaS, both are adjustments to invoices—used when things change after the original bill goes out
Example
You overcharged a customer $100. A credit memo subtracts that from their balance.
You underbilled them for extra usage? A debit memo adds that charge to their account.
Why This Matters (To SaaS & Finance Teams)
You’ll rarely get billing perfect the first time—especially with usage-based models, mid-cycle changes, or manual overrides. That’s where memos come in.
Without a clear credit memo/debit memo process, you end up with frustrated customers, outdated account balances, and inaccurate revenue accounting..
Ordway’s billing software lets you issue credit memos and debit memos to customers and automatically updates the associated revenue accounting. You can issue memos for disputes refunds, SLA infractions, contract changes, and simple billing errors.
How It Works (Break It Down Simply)
- Credit Memo: Reduces an outstanding invoice or gives a customer account credit
- Debit Memo: Adds a charge to an open invoice or bills additional usage/fees
- Both adjust Accounts Receivable balances without canceling the original invoice
- Update customer account, contract, or product records in financial systems
- Update accounting journal entries for revenue, AR, invoices, and payments
Common Headaches
- Manually issuing credits after proration or plan changes
- Forgetting to charge for overages or one-off usage
- Duplicate or conflicting adjustments across systems
- No audit trail documenting why the credit/debit happened
- Revenue recognition errors from retroactive adjustments
Best Practices
- Set clear rules: when to use a credit memo or debit memo vs. issue a new invoice
- Automate memos tied to subscription changes or CPQ workflows
- Include clear memo descriptions for audit and support clarity
- Track memos in your subledger or ERP for clean financials
- Avoid using memos to “hide” billing errors—surface root causes
When to Use Credit and Debit Memos
- Mid-cycle subscription changes (upgrades, downgrades)
- Usage-based overages billed after the period ends
- Refunds, goodwill credits, or SLA adjustments
- Error corrections post-invoice
- Contract amendments or scope changes
KPI Impact / What It Affects
- Impacts AR aging and cash forecasting
- Affects revenue recognition timing
- Critical for clean audit trails and SOX compliance
- Reduces billing disputes and improves CX
- Tracks financial impact of discounts, overages, or billing errors
Real SaaS Takeaway
In SaaS, change is constant. The invoice isn’t the end—it’s a snapshot. Credit and debit memos let you adjust without reissuing the whole thing. Ordway automates those adjustments while keeping the GL, ERP, and audit trail clean.
FAQ Section (Quick Answers to Real Questions)
What is the difference between a credit memo and a debit memo?
A credit memo reduces what a customer owes. A debit memo adds to the account balance.
When should I use a credit memo?
Use it to issue a refund, apply a discount after billing, or correct an overcharge.
Do memos affect revenue recognition?
Yes—especially for ASC 606. Revenue may need to be reversed or deferred depending on timing and type of adjustment.
Want to Go Deeper?
Let Ordway show you how to automate credit and debit memos across subscriptions, usage, and mid-cycle changes—with full GL sync and audit traceability. Request a demo
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