Vendor credit

Glossary / Vendor credit · Also called Supplier credit, Debit memo, Credit from vendor

How it works

A vendor credit is a credit memo seen from the buyer's side. The supplier issues a credit note; you enter it as a vendor credit. It reverses the expense or inventory on the original purchase and lowers accounts payable.

The credit should be applied when you next pay that vendor, so you pay the net amount. If it is never applied, it sits in accounts payable as a negative balance and the supplier keeps money that is yours. Review vendor balances at month-end for unused credits.

Credits come up for returned goods, short shipments, damaged stock, pricing errors and volume rebates. Ask the supplier for a written credit note each time, and enter it with the same date and reference so the two sets of records match.

Worked example: Applying a credit for damaged stock

A hardware store owes a supplier $1,500 on an open bill. Ten boxes of tiles worth $200 arrived broken, and the supplier issues a credit note.

The store enters a $200 vendor credit. Inventory falls by $200 and accounts payable falls by $200. When the store pays the bill, it applies the credit and sends $1,300. The bill is paid in full.

In AcboBooks

In AcboBooks, a vendor credit reduces what you owe a vendor. In Pay Bills it is available against that vendor's ticked bills and can be applied oldest bill first in one step.

Related terms

• Credit memo
• Bill
• Accounts payable (A/P)
• Purchase order (PO)
• Aging report

Related on this site

• Accounts payable in AcboBooks
• Purchase orders in AcboBooks
• Monthly closing checklist

Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

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