What is credit memo used for?

A credit memo, or credit memorandum, is a document issued by a seller to a buyer, indicating a reduction in the amount owed by the buyer, often due to returns, overpayments, or pricing adjustments. It serves as a formal acknowledgment of a transaction adjustment and can be applied to future purchases or offset against current outstanding invoices. This tool helps maintain accurate financial records and fosters positive customer relations by ensuring transparency in billing.