How debit memo works
On the customer side, a business issues a debit memo when it needs to bill for something missed on the original invoice, like a shipping fee or a price correction. On the vendor side, a business might receive a debit memo from a supplier for a shortage in a return or an underpaid bill. A debit memo can also cover a bank fee passed through to a customer or a rate change applied retroactively.
Like a credit memo, a debit memo references the original transaction and documents the reason for the change, rather than editing the original invoice or bill directly. This keeps a clear audit trail showing exactly what was adjusted and why, which matters if the customer or vendor questions the change later. Reviewing debit memos received from vendors regularly can reveal a supplier that consistently undercharges or overcharges, which is worth raising directly with them.
Example
A supplier ships an order and later realizes it undercharged the customer by $75 due to a pricing error. It issues a $75 debit memo referencing the original $1,200 invoice, bringing the customer's total balance owed to $1,275. The debit memo clearly documents the pricing correction for both parties' records.
Debit memo in QuickBooks Online vs Xero
Not software-specific: QuickBooks Online and Xero do not have a dedicated debit memo feature on the receivables side, so businesses typically handle it as a small additional invoice or a journal entry referencing the original transaction. On the payables side, a vendor's debit memo is entered as an increase to the existing bill. Keeping a simple log of debit memos issued and received helps confirm none of them are missed during payment or invoicing.
Related terms
How LedgerBPO handles debit memo
We record debit memos accurately on both the receivable and payable side, tying each one back to the original invoice or bill so the reason is always clear. A dedicated accountant makes sure these adjustments do not get lost or miscoded. You get accurate balances even when corrections happen after the fact. We keep a running log of every debit memo issued or received so none of them slip through unnoticed.