Managing the billing operation for any business means you’ve encountered your fair share of definitions. It’s helpful to know as many as possible, but there are a few key terms that you’ve got to understand in order to function.
We really can’t overstate this point: a huge part of doing business (and keeping afloat) is getting paid. No matter what you are selling, you must have a clear and effective way to collect payments from customers. If you’re offering goods and/or services on credit (as opposed to paying up front in full), the payment collection process is even more important.
An invoice provides merchants and customers a communication framework for payments. It is the document (paper or electronic) that you send to your customer outlining what was purchased and how much is due. Invoices generally include additional information like your business name and address, the customer’s name and address, the terms of the relationship, and any special notes.
Let’s say your customer makes a purchase and you send out an invoice. The customer pays the invoice, you record the payment, and then something changes. Maybe the product the customer purchased went out-of-stock, or you stopped providing a specific service. What do you do now?
Credit notes provide businesses with a way to make changes to an invoice that has already been paid. They allow the merchant in question to both communicate with the customer about the change, and document the change for record-keeping purposes. And in case you’re wondering, a credit note isn’t a refund. It’s an amount linked to the customer’s account that can be used at a later date.
For more detail on how credit notes function inside the Invoiced platform, have a look at our Credit Notes documentation page.
Debit notes are not exactly the opposite of credit notes, but the workflow starts at the other end. Instead of a merchant adding a credit note to an invoice which is then pushed to a customer, the customer inserts a debit note on an invoice that is then pushed to the merchant.
Maybe a customer ordered a shipment of a specific product and received the wrong one. The customer can send back the shipment and submit a debit note to the merchant, requesting credit for the incorrect shipment.
The debit note is the customer’s way of proactively asking for a credit note on their invoice. It’s primarily used in B2B transactions, so we don’t hear about it as much in the consumer economy.
Understanding these key terms can make billing easier.
Knowing what an invoice, a credit note, and a debit note are makes billing tasks run a lot more smoothly. What other terms are critical to your billing workflow? Drop us a line at firstname.lastname@example.org and let us know.