A credit memo, also known as a credit memorandum or credit note, is a commercial document issued by a seller to a buyer. This document primarily indicates the reduction or elimination of the amount that a buyer owes to a seller, typically due to returned goods, errors in invoices, or overpayment. The credit memo showcases discrepancies in the transaction and corrects them, ensuring the balance of the accounts receivable and payable remains accurate. It serves as a record for both parties, establishing transparency and positive business relationships.