Credit Memo Processing

Effective date
Last updated 12/12/2018

A credit memo may be issued by a vendor because the University returned goods that were ordered and received unsatisfactory, due to pricing discrepancies or any other reasons. Credit memo is a vendor’s written statement indicating that funds are owed to the University, and University has a right to pay a certain amount less when the next check is issued to the vendor.

If the University has not yet paid the vendor, the credit memo can be used as a partial offset to its invoice-based payment to the vendor. If the corresponding invoice has been paid, credit memo can be used to offset future payments to the vendor for invoices for any other departments.

If the University does not anticipate doing additional business with the vendor, Accounts Payables will request a refund check from the vendor in lieu of a credit.

Because the University does not employ a formal returned goods process through a centralized unit, it is the responsibility of each department to ensure that any goods rejected or returned result in proper credit memo issued to the University. The department should also maintain accurate records of goods being shipped back to the supplier

The objectives of this policy are to:

  • Establish effective internal controls and ensure proper custody over the University assets.
  • Establish a standard procedure for credit memo processing.
  • Assign and clarify the responsibility for various departments, Accounts Payable department and individuals involved in processing credit memos.
  • Provide resources that will assist University staff and vendors in meeting the requirements of this policy.

Who is Affected by This Policy

This policy applies to all vendors, University departments, Accounts Payable department and University staff who approve and process invoices and credit memos. As with any other payment issued by the University, standard operating procedures apply to all transactions, including credit memos. All procedures, coordination and approvals are required to take place in order to comply with set policies.


Term Definition
Credit Memo

A credit memo is a contraction of the term "credit memorandum," which is a document issued by the seller of goods or services to the buyer, reducing the amount that the buyer owes to the seller under the terms of an earlier invoice.The credit memo usually includes details of exactly why the amount stated on the memo has been issued, which can be used later to aggregate information about credit memos to determine why the seller is issuing them.

If the buyer has not yet paid the seller, the buyer can use the credit memo as a partial offset to its invoice-based payment to the seller. If the buyer has already paid the full amount of the invoice, the buyer has the option of either using the credit memo to offset a future payment to the seller, or as the basis for demanding a cash payment in exchange for the credit memo.

Vendor A vendor, also known as a supplier, is an individual or company that sells goods or services to someone else in the economic production chain.
Invoice An invoice is a commercial document that itemizes a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal, and provide information on the available methods of payment. An invoice is also known as a bill or sales invoice.
Purchase Order

A buyer-generated document that authorizes a purchase transaction. When accepted by the seller, it becomes a contract binding on both parties.

A purchase order sets forth the descriptions, quantities, prices, discounts, payment terms, date of performance or shipment, other associated terms and conditions, and identifies a specific seller.

When purchase order transaction is created ,reservation is made against the budget in the departmental accounts.


  • Credit memorandums received by departments from vendors represent funds owed to the University and should be entered into the BuyWay or forwarded to the Accounts Payable Department immediately. Department may be asked to provide additional information such as a number of corresponding invoice, accounting line or reason for the issuance of credit memo in order to ensure proper credit memo processing.
  • When a credit memo is entered in Accounting System ( Banner), departmental expense is reduced immediately. However, the University has yet to collect the funds.
  • Future invoice payments to a vendor from any department will offset credit memos if the University continues a business relationship with the vendor. Credit memo will be recorded as a reduction of the balance due for the specific vendor.
  • If a purchase order was used to pay for the invoice, the credit memo can be entered against an existing purchase order if it is still open. If a purchase order is closed, a credit memo will be processed as a direct pay against an accounting line.
  • When entering a credit memo, the earliest possible due day must be used in order for the credit memo to be offset for a future payment to the vendor.
  • University Accounting software (Banner) treats each address sequence for a vendor as a different vendor; therefore for the credit memo to be processed against an invoice, the address on the future invoice must be the same as the credit memo address.
  • If a department receives a credit memo from the vendor, and all invoices for the vendor have been paid, and the department does not anticipate doing additional business with this vendor, the department must immediately notify Accounts Payable. A standard letter(s) containing verbiage required by the University collection policy will be mailed from Accounts Payable to the vendor requesting refund.
  • If department receives the refund check, it must be forwarded immediately to the Accounts Payable for processing. The department will have to reference a correct index, corresponding invoice number, and account number on the check or supporting documentation.
  • Outstanding vendors’ credit balances will be reviewed weekly by the Accounts Payable Department to identify potentially uncollectible balances. Vendors with credit balances outstanding for more than 45 days will be contacted regarding a refund.
  • All reasonable efforts will be expended to collect balances owed to the University. Vendor will be contacted at least twice by correspondence indicating that the account will be placed in collection in case payment is not received by the date specified in the letter(s); Manager of University collection within the Bursar’s must be copied on these correspondences. The correspondence must be sent out no more than 30 days before placing account into collection and no more than 90 days before the last correspondence.
  • Vendor’s debt will be placed with an outside collection agency or referred to the Ohio Attorney General's Collection Enforcement Office for collection. The debtor will incur additional charges and collection expense. Outside collection agencies or Ohio Attorney General's Collection Enforcement Office are used only when the Miami University Collection Department cannot obtain payment.
    The department will be notified by Accounts Payable that vendor’s debt is submitted to collection agency and must agree to pay the collection fee (currently $15.00) charged by our vendor TEK Co. Collection fee is charged regardless if debt is collected from the vendor. The department will be responsible for answering questions regarding quantities, quality, prices and other detail relevant to the purchase.
  • Credit memo will be considered uncollectible and recommended for write off after all customary efforts to collect have been exhausted.Consistent reporting of the uncollectible credit memos is necessary to ensure the monitoring of collection effectiveness.
  • The following write-off criteria has been established by the University Controller.
    • The account will have been referred to at least one collection agency and/or litigated.
    • It is reasonably estimated that the cost of collecting the debt would be equal to or exceed the amount of the debt.
    • The debtor does not and will not for the foreseeable future own or have the right to own assets from which the Miami University could collect the debt.
    • Vendor’s debt determined to be uncollectible are to be written-off when they become three (3) years old as of 6/30/xx (current year), and has not recorded payment activity within twelve (12) months prior to 6/30/xx (current year).
    • Regardless of the age of the account; legal notification that an account balance has been discharged through bankruptcy or notification of death of the debtor, will result in the balance being be written off immediately.
    • All bad debt that are written off with the exception of bankruptcy and death, are still considered due and payable in full by the debtor.

Roles and Responsibilities

Position or Office Responsibilities
  • Ensure that any goods rejected or returned result in proper credit memo issued to the University.
  • Contact vendor for any credit memo discrepancies (price, item description, quantities) and answer questions relevant to the purchase.
  • Enter credit memos in Buyway immediately upon receipt or forward credit memos to the Accounts Payable department for processing.
  • Notify Accounts Payable in case all invoices to vendor has been paid, and the department does not anticipate doing additional business with the vendor.
  • Forward to Accounts Payable received refund checks and provide information for proper accounting.
Accounts Payable Department
  • Reviews and processes approved credit memos received from vendors.
  • Prepares weekly report to review outstanding credit memos, analyzes vendors’ balances and recommends an appropriate course of action.
  • Contacts vendors regarding refunds.
  • Processes refund checks received from vendors.
  • Communicates with Departments regarding collection process.
  • Identify uncollectible balances and recommends write off.
Collection Manager

Reviews correspondence with debtor, and insures proper verbiage and timing of correspondence.

Places debt with TEK collection agency.

Communicate information received from TEK to Accounts Payable.


Standard letter requesting refund.

Recommendation for write off form.

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