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The average cost of the CPA exam is about $2,000, but the exact cost varies for each candidate. The biggest reason for this is that each state has its own board of accountancy, each of which sets its own costs for several items that are needed to sit for the exam.

There are also necessary costs that aren’t tied to the exam itself, such as licensing fees and continuing education costs. If you have to retake or reschedule the exam, you may have to repay registration and examination fees. Plus, the single most expensive part of the process tends to be the review course, the price of which can vary widely.

Passing the CPA exam can be expensive. Fortunately, there are many ways to cover the costs, and the price can be well worth it if you pass the exam.

How Much Does It Cost to Take the CPA Exam?

As just noted, the cost to take the CPA exam is about $2,000, but the final estimate will vary depending upon where you live. Hence, you could end up paying several hundred dollars above or below this amount. However, while the total cost can vary significantly, there are certain items that are common expenses for all exam candidates.

This is a wide range, but that is expected given that the costs can be different from one state to the next. Examination fees shown above are approximate; your state’s fees may be higher or lower.

In addition, the CPA review courses sometimes have tiered pricing, so even two people taking the same course and living in the same state may have different costs. There can be several differences between different tiers of review courses, such as 24-month access versus lifetime access.

Do You Need a Finance Degree to Take the CPA Exam?

Each of the 55 licensing jurisdictions (all 50 states, plus Washington, DC, Guam, Puerto Rico, the Virgin Islands, and the Mariana Islands) maintains its own licensing requirements. Because of this, each state may have slightly different requirements to sit for the exam.

All 50 states require a bachelor’s degree plus 150 credit hours in order to become a licensed CPA. However, rather than requiring a finance (or accounting) degree, states may require 120 credit hours of college credits plus 30 additional, accounting-specific credit hours to sit for the exam.

Still, you should review your state’s requirements before you begin preparing for the exam. Some states require 30 hours of accounting courses, while others require upper-level accounting courses. Your state or territory’s board of accounting website will list the specific requirements needed to sit for the exam.

Recommended: What Can You Do With a Finance Degree and What Is the Cost?

Other CPA Exam Costs

There isn’t just one fee to sit for the CPA exam; candidates must cover several costs, all of which vary depending upon where you live. This is one of the reasons the cost can be quite different from one state to the next.

Ethics Exam

Your state may require you to take and pass an ethics exam in order to practice there. Some states have their own ethics exams, while others administer the AICPA exam. Currently, the AICPA exam costs $250 – $320 and can vary depending on the course option you select.

Registration Fees

Most states require a registration fee for each of the four exam sections. Fees vary but are generally $75 to $100 per section. Some states also have tiered pricing for registration, allowing you to save money if you register for multiple sections at once. If you choose to register for multiple sections at once, keep in mind that each section is estimated to take four hours, with a total of 16 hours for the entire exam.

Application Fees

Application fees are due when you apply to take the CPA exam. Because each state sets its own fees, these vary but are usually between $100 and $200. The fee is non-refundable, but you usually don’t have to pay the application fee again if you have to retake the exam. However, if your application is rejected, you may have to pay the fee more than once.

CPA Licensure

The CPA licensure fee is only necessary after you pass the exam. This is the fee you pay to your state accountancy board to be a licensed accountant. These fees also vary by state and can run anywhere from $50 to $500. This cost is an annual one, so you should expect to pay the fee every year to maintain your license.

Keep in mind that each state has its own licensing requirements and accountancy board. Hence, if you move out of state, you will have to be licensed in the new state to be recognized as a CPA there.

Background Check

Your state may require you to pass a background check as part of the licensing process. According to NASBA, the fee ranges anywhere from $1 to $49. In the case of California, there is an additional “rolling” fee of $15 for fingerprinting.

Travel and Accommodations

Currently, the CPA exam cannot be taken online; it can only be administered at Prometric Testing Centers. You can find a testing center with Prometric’s Pro Scheduler . Testing centers are only located in select cities, so you may end up spending hundreds of dollars on transportation and accommodations depending on how close you are to a testing center.

International Candidate Credential

If you want to take the exam outside the United States, you may be required to pay additional fees for international candidate credentialing. Most states allow international applicants to sit for the exam, but six states and two territories do not administer it. In addition to any domestic fees, you may also have to pay additional fees of $371.55 for each of the following: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting, and Reporting (FAR), and Regulation (REG).

Covering CPA Exam Costs

Although the exact cost of the CPA can vary significantly, one thing is for certain: the exam and licensing process is expensive. Fortunately, there are many ways to cover the costs.

Private Student Loan

A private student loan can help you cover some or all of the cost of the CPA exam. For example, SoFi student loans have no fees, come with multiple repayment options, and have low fixed and variable rates. Everything is handled online and the application process is simple.

Private student loans are different from federal student loans. Federal student loans may have more consumer protection, but private student loans may offer more competitive interest rates. Consider both private and federal student loans if you need to finance your CPA exam costs.

Credit Card

You may be able to pay for some or all of your costs with a credit card. In fact, if paying online, payment by credit card may be required for examination fees. The same may be true for application and registration fees.

Exam prep courses are offered by third parties, so you should be able to pay for them with a credit card in most cases.

Personal Savings

Avoid tapping into your emergency fund, but any excess savings can help cover exam costs. If you aren’t able to pay for the entire cost with personal savings, scholarships, grants, and student loans can help you pick up the tab. But personal savings can also be useful, particularly if you still owe money after considering other options.

Scholarships

There are several scholarships available that can help you cover much of the cost of the CPA exam. For instance, the American Institute of Certified Public Accountants offers a scholarship of up to $1,000 to exam candidates. Another example is the Newt D. Becker scholarship, worth up to $2,499.

Your state board may also offer scholarships; for example, Wisconsin offers several $2,500 college scholarships to go toward your 150 hours required to sit for the exam. Check with your state board to see if the state offers any additional scholarships.

Employer Reimbursement

Some employers will reimburse you for the cost of the exam itself, review materials, or both. If you work for an accounting firm and the exam is relevant to your job, it’s a good idea to ask whether your employer reimburses these costs.

The Takeaway

There are many costs associated with CPA licensure, from prerequisite coursework all the way to maintaining your license each year. Each of the 55 licensing jurisdictions has its own requirements and fees, so where you live can affect not only licensing requirements but also the cost of the whole process.

However, what is for sure is that becoming a licensed CPA isn’t cheap. The price tag is likely to be four figures, which is high, especially before you are certified.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

How much does the CPA exam cost to take?

The cost is about $2,000 on average, but the exact cost depends upon where you live. Each state sets its own fees, so they may vary significantly from one state to the other. Also, exam prep courses can add to the overall cost.

Are there any hidden costs to take a CPA exam?

Hopefully, there will not be any hidden costs of the CPA exam if you have considered all of the costs mentioned here. However, there may be some fees you don’t anticipate. For example, if you have to retake or reschedule the exam, you may have to repay the registration fee in addition to repaying fees per exam section.

Photo credit: iStock/ridvan_celik

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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SOIS-Q224-1917051-V1

Getting a law degree is bound to take a big commitment — in time, energy, and money. And it’s tough from the very first step. Getting into law school isn’t easy, especially for those aiming for the top tier. So the sooner you can attack the application process, the better.

Keep reading for an overview and timeline of how law school applications work.

Applying to Law School

When you’re figuring out how to go to law school, the application process alone can feel like quite a journey. In addition to completing a Bachelor’s degree, the law school application process involves preparing for and taking the LSAT, writing a personal statement, and securing letters of recommendations. With all that on your list, figuring out how to get into law school can feel like a bit of a maze.

After getting into law school, you’ll also need to pay for your education. This can also require some leg work, such as filling out the grad school FAFSA or potentially applying for scholarships or private law school loans. Continue reading for a more detailed explanation on the law school application process.

1. Prep for the LSAT

Because the LSAT, otherwise known as the Law School Admission Test, is the only test accepted for admission purposes by all ABA-accredited law schools, most American Bar Association-approved law schools in the U.S. require students to take the exam. The half-day, standardized test is administered nine times and students can take the test at home or from another preferred location, as the tests are now proctored remotely.

At a minimum, the Law School Admission Council (LSAC) recommends taking a practice test, including a writing sample, under the same time constraints allowed for the actual test. The results could give you some idea of your strengths and what areas need improvement.

Those who plan to take the practice test and/or sign up for classes will probably want to leave enough time before their LSAT test date. The LSAT and your GPA are two important numbers to law schools. LSAT scores range from 120 (lowest possible) to 180 (highest possible).

Though other factors are considered, if you want a good chance at getting into a certain law school, your LSAT score and GPA should be at or above the LSAT and GPA medians of that school. You can generally find this information on the college’s website.

Recommended: How to Study for the LSAT

LSAT Prep Timeline

Many law schools require applicants to take the test by November or December in order to be admitted the following fall. However, organizations like Kaplan, a college admission services company that offers test preparation services and admissions resources, suggest factoring in the law school admissions cycle when selecting your testing date. They note that June, July, and September test dates are generally popular since they allow for plenty of time for students to receive scores.

Be sure to factor in your schedule and workload when deciding when you’ll take the LSAT. Taking the test in June will give you time to retake it if you aren’t happy with your score — but if you’re still in college, you’ll have to prepare while you’re busy with coursework.

If you take the test in October, you’ll have the summer to prepare and you can take the test again in December, if necessary. But your applications may be submitted later than other test takers — and some schools already will have started filling their seats. Some students may choose to take a year off between college and law school to prepare for the LSAT and work on their applications.

Test takers may want to look for some free prep materials online or may decide to sign up for paid online classes, in-person classes, or tutoring sessions.

2. Register for CAS

The Law School Admission Council (LSAC) is a not-for-profit organization that offers services and programs to help students manage the law school application process. Creating an account at the LSAC.org website allows applicants to track their progress and manage deadlines as they connect with their selected schools.

The Credential Assembly Service (CAS), which is provided by the LSAC, is required by most ABA-approved law schools. For a fee (currently $45), the CAS will put together a report containing transcripts, LSAT scores, and letters of recommendation.

3. Submit Your Transcripts and Letters of Recommendation to CAS

Students must contact their college (or colleges) to have transcripts sent to the CAS. And it’s up to the student to find professors they believe will provide positive evaluations of their past and future performance to send recommendation letters to the CAS. It’s a good idea to do this in August or September when college offices and faculty are back in full swing.

You’ll only have to do this once. Then, when you apply to your chosen law schools, they can contact the CAS and request a copy of your report.

4. Search for Law Schools

There are several factors that could go into your school choice. Just as with your undergraduate education, you may want to apply to a mix of “reach” schools, “safety” schools, and a few that land right in the middle.

But the application process can be pricey, so if you’re on a budget, you may want to narrow the field. When you’re deciding how many law schools to apply to, here are some things to consider:

•   Location: If you’re hoping to go to a top law school, you’re probably prepared to relocate. If not, you may want to start your search by thinking about where you’ll want to practice law someday. After all, you’ll be building a network with your fellow students, professors, and people you meet in the community.

•   Reputation: Starting out, fellow attorneys (and potential employers) won’t know much about your skills. Instead, they’ll likely regard you as a “Duke grad” or a “Harvard man” (or woman), and judge you by what they know about your law school. That doesn’t mean you have to go to a big, prestigious school — but you may want to look for a respected school.

•   Interests: By attending a school that offers classes that focus on the type of law you think you’ll want to practice (sports and entertainment, criminal, business, health care, etc.), you’ll likely be better prepared for your career. And you’ll probably have an opportunity to find mentors who could help you as a student and in the future.

•   Recruitment, tours, and alumni events: If you have the opportunity, you may want to attend a meet-and-greet event in order to touch base with recruiters, former students, and faculty who can fill you in on what law school and a law career have in store. You also may be able to get an idea if the campus and community are a good fit for you.

•   Let the schools find you: The LSAC’s Candidate Referral Service (CRS) allows law schools to search a database and recruit students based on certain characteristics (LSAT score, GPA, age, geographic background, etc.). Registration is free for anyone with an LSAC.org account.

Recommended: A Guide to Transferring Law Schools

5. Apply to Law Schools

After you’ve taken the LSAT, set up your CAS, and squared away your letters of recommendation, you’ll need to start on your personal statement. Stellar LSAT scores and grades are important to a law school application, but a personal statement could also tip the balance in your favor. The goal of a personal statement is to explain to the admissions committee why you would be a valuable addition to their student body.

Start early so you have a chance to show your work to others who might help you fine-tune it — advisors, teachers, parents, friends, and any grammar snobs or professional writers/editors you might know. This is your chance to stand out from the crowd, so use your personal statement to explain what makes you, you. And if you’re applying to multiple schools, you may want to take the time to tailor your piece as needed.

When you have everything ready to go, you’ll have the option to apply to as many U.S. law schools as you like through your LSAC.org account. Make sure all the information on file is accurate and up to date, and keep good records of every step in the process.

And be patient: Many schools practice rolling admissions, which means the earlier you get your application in, the sooner you’ll hear back. But there’s no set timetable, so you may have to wait a while.

How Will You Score?

It can be difficult to predict how you’ll score on the LSAT, but taking practice tests can be an indicator of how well you’ll perform on the day of the exam. The questions on the LSAT are all weighted equally and you won’t be penalized for incorrect answers. What matters is the number of questions you answer correctly.

Paying for Law School

Once you’ve cleared the hurdle of applying to law school, you might want to start considering ways to pay for law school. You may be familiar with the financial aid process from applying for undergraduate loans, but graduate students are also eligible for federal student aid.

The requirements of FAFSA are similar for grad students, and the information provided will be used to determine federal financial aid like scholarships, grants, work-study, and federal student loans. When those sources of funding aren’t enough — graduate private student loans could help fill in the gap. Though, they are generally considered after all other sources of financing have been exhausted because they don’t offer the same borrower protections (like deferment options) as federal student loans.

The Takeaway

Applying to law school requires dedication, time, and preparation. Taking the time to understand the application process can help students get into law school. Plan out your LSAT study schedule so you are prepared for test day, think critically about which law schools are a best fit for your personal and professional goals, and don’t forget to devote enough time to write, edit, and rewrite your personal statement.

Once you’ve gained admission, you’ll need to figure out how to pay for law school. Law students are eligible for federal financial aid like grants, scholarships, and federal student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOIS-Q224-1917167-V1

If you’re in a bind and there aren’t many other options available to you, it is possible to get a personal loan for paying rent. However, you’ll need a solid credit score and credit history to get a good interest rate on a rental assistance loan.

Before you’d get a loan for rent, you may want to evaluate the costs involved and the pros and cons. Read on to learn more about getting a loan for rent payment.

What Types of Loans Can You Use for Rent Payments?

There are several different types of personal loans that you can obtain for paying rent. These include secured and unsecured personal loans for rent assistance, as well as payday loans.

Secured Personal Loans

Secured loans require putting up collateral, which is an item of value used to back up the loan. If the payments on the loan are not made, the lender can seize the collateral and sell it to make up for their losses. Some types of collateral that may be used include cash savings, stocks, a car, a boat, a home, jewelry, fine art, and future paychecks.

Securing a loan with collateral may result in a lower rate, but all conditions are dependent on what the lender is willing to take and what terms they’re willing to offer on a personal loan.

Unsecured Personal Loans

Unsecured personal loans do not require collateral. Since the lender has fewer options for recovering the funds should the borrower default, these types of loans often come with higher rates and shorter terms.

Payday Loans or Cash Advances

A payday loan, or cash advance loan, is a small, expensive loan you repay all at once, typically on your next payday. Interest rates and fees can be exorbitant. As a result, this type of loan should generally only be a last resort for covering rent payments.

Recommended: The Problem With Online Payday Loans and Fast Cash

Reasons Why You May Need to Use Loans for Rent

Using a personal loan for rent isn’t something you’d want to do routinely, but you may come across certain scenarios where it may make sense, such as when:

•   You have a short-term financial setback.

•   You’ll soon have the funds to pay the loan back.

•   You have a good to excellent credit score.

•   You can afford to make the monthly payments.

•   Your only other option is a payday loan.

Keep in mind that while there’s a lot you can use a personal loan for, taking one out still involves assuming debt. If you’re not confident you can repay a loan for rent, then it’s worth considering if you have any other options available to cover your rental costs for the month.

What Happens If You Do Not Pay Your Rent?

If you do not pay your rent, your landlord can start eviction proceedings against you. Laws vary from state to state and city to city, but it’s important to pay your rent on time.

If you know you’re going to have trouble paying rent, dig out your lease agreement and find out if you have a grace period, what the late fees are going to be, and who to contact if you need to pay late. If you reach out to your landlord before you miss a due date and explain your situation, they may be willing to give you a grace period and delay eviction proceedings.

Is It a Good Idea to Use Personal Loans for Rent Payments?

Generally, experts advise against using a personal loan for paying rent. Ideally, you should have an emergency fund that can cover these essential costs if something unexpected arises.

However, if you’ve decided this is your best course of action, there are some positive aspects to obtaining loans for rent over other potential options. Of course, there are downsides to take into account as well.

Recommended: How to Start an Emergency Fund

Pros of Using Loans for Rent Payments

Personal loans are known for their flexibility and versatility. Here are some of the upsides of turning to a personal loan for paying rent.

Potentially Competitive Loan Terms

A personal loan can come with competitive terms. If you’ve kept your credit in good shape, you may be able to qualify for a low interest rate with low fees and a reasonable repayment term. Your credit score doesn’t have to be perfect to be approved for a personal loan, but a score higher than 670 can increase your chances of getting approved for a personal loan with a competitive interest rate.

Recommended: Typical Personal Loan Requirements Needed for Approval

Versatility and Accessibility

Personal loans are known for being flexible. Borrowers can use them for a wide variety of purposes. For instance, you can use a personal loan for debt consolidation or to cover home renovations, an upcoming vacation, or even rent, among other things. Plus, personal loans offer quick access to funds — sometimes even the same day you apply.

Could Help You Build Credit

If you make all of your payments on time, having a personal loan could improve your credit profile. Adding an installment loan can also improve your credit mix, which is factored into your score.

Affordability

Interest rates on personal loans are generally lower than interest rates for credit cards. Your landlord may not even be able to take a credit card payment.

Cons of Using Loans for Rent Payments

Using a personal loan to pay rent generally isn’t recommended unless it’s a last resort. There are a number of drawbacks to consider.

Additional Fees

Personal loans aren’t free. You may have to pay an upfront fee to take out the loan, not to mention late fees if you miss a payment or even prepayment penalties if you pay in advance.

Possible Harm to Credit Score

If you run into trouble making your loan payments on time, it could have a negative impact on your credit. This could make it harder to qualify for other types of loans, such as auto loans and mortgages, with favorable interest rates in the future.

Interest Rates

If you’re having trouble making your rent payment, other areas of your financial life may have taken a hit. This could mean the interest rate you’re given for a personal loan will be less than ideal. Even if you’ve been able to maintain great credit, you’ll still need to pay interest on a loan for rent.

Increased Debt

Personal loans add debt to your bottom line. You’ll pay more over time by financing your rent payment into a loan. If you’re experiencing financial woes, adding a loan payment on top of what you’re going through may not be a good option.

More Personal Loan Tips

It’s possible to obtain a personal loan for a wide range of purposes, including paying rent. However, it’s important to weigh the pros and cons of getting a loan for rent before you do so. You’ll owe interest (and possible fees), and you could do harm to your credit if you’re not timely about repayment. But if it’s your last resort, a loan for rent is an available option.

If you do decide to get a personal loan — whether for covering rent or another purpose — it’s important to shop around to find the best possible offer.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Are you able to use loans for rent payments?

Yes, you can use loans for rent payments. You may want to examine all your options before you do, though. Personal loans carry fees and interest, and if you miss payments, you can drag down your credit score.

Is it hard to get a loan for rent payments?

It can be hard to get a loan if you have poor or thin credit or a low income. A lender will analyze your credit score, credit history, and income to determine what amount you can afford to borrow and on what terms.

What type of loan is good for rent payments?

Personal loans are a flexible means to pay for a number of things, including rent. Payday loans and credit card cash advances are high-cost ways to make rent payments, and generally should be avoided.

Photo credit: iStock/nortonrsx

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOPL-Q224-1909525-V1

A debit memorandum is a notice issued to customers from a bank or a business, informing them of an adjustment being made to their account balance. In all cases, a debit memo means that money will be taken out of an account to cover a fee or an underpayment.

Debit memos occur both in personal banking — like for a bounced check or insufficient funds fees — but are also common in business-to-business (B2B) transactions. They are often to correct an erroneous invoice or respond to changing market prices. Understanding how debit memos work can help you stay on top of your money.

What Is a Debit Memo?

A debit memo is a notice from a financial institution or a business to a customer that there is a forthcoming adjustment (a debit or withdrawal of funds) to their account. You may also hear it referred to as a debit memorandum or debit note.

A debit memo might show up on your bank statement for an atypical fee, like for ordering checks or for overdrafting. Normal checking account debits, like from a swiped debit card or a cashed check, are not classified as debit memos and will not appear on a bank statement as such.

In B2B transactions, a company may issue a debit memo after invoicing if there was something incorrect on the original invoice. Typically, this happens if the customer was undercharged.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How Does a Debit Memorandum Work?

In banking, if you have incurred a fee, such as an overdraft fee, the bank will add a debit memorandum to your monthly bank statement. If you use a digital banking app, you can often see this debit note in real time — no need to wait for a paper statement in the mail.

Just make sure you’ve turned on account alerts to track deposits, withdrawals, and other important account changes.

Banks cannot just assess fees at random. Federal law requires banks to disclose any fees they might charge for a bank account; before opening a bank account online or in person, ask to see a detailed fee structure. If you don’t think a debit memo on your bank statement is correct, contact customer service to address the issue.

In business, debit memos work a little differently. The company acting as the seller might issue a debit memo after sending an incorrect invoice. Doing so notifies the buying company that their accounts payable will increase to rectify the unpaid amount.

Recommended: How Long Does It Take to Open a Bank Account?

Real-Life Examples of a Debit Memorandum

Here are two real-life examples of bank memos, one for regular consumer checking accounts and one for a B2B transaction.

Banking Scenario

If you write a check to a friend but don’t have enough money in your checking account to cover it, the check will bounce when your friend goes to deposit or cash it. Every time you bounce a check, your bank will likely charge you a fee. Rather than sending you an invoice, they will directly debit the amount from your bank account.

Even if you have no money in your account, you can go into a negative balance. This debit will show up on your bank statement as a debit memo.

Business Scenario

In this example, your company has done construction work for a local business. However, when sending the invoice to the business, you accidentally left off the labor cost and additional materials required for one portion of the project, equivalent to $5,000.

To resolve this problem, you can issue a debit memo to the local business. This signals that you will be recording an increase in your accounts receivable of $5,000. In turn, the local business will then need to increase the amount in its accounts payable by $5,000 to cover the additional fee. To avoid delays or disputes, the debit note should include adequate information to explain the adjustment in the final cost.

Recommended: How to Transfer Money From One Bank to Another

Types of Debit Memos?

Three situations commonly call for debit memos: bank transactions, incremental billing, and internal offset. Here, learn about all three types of debit memos to understand their key differences.

Bank Transactions

As an individual consumer, you will most likely encounter a debit memo as a bank transaction. If you incur a fee through your bank, like for printing checks or an overdraft, the bank will debit your account directly to cover that fee. This will show up on your bank statement as a transaction, labeled as a debit memo or debit note.

Incremental Billing

If you are involved in billing for B2B transactions, you may encounter debit memos. A seller might issue a debit memo to a buyer for several reasons:

•   If there were errors on the original invoice.

•   If the buyer paid upfront, but project costs were higher than expected.

•   If the cost of materials or labor increased during the course of the project.

•   If the scope of the work changed and resulted in higher costs.

Internal Offset

If a customer’s account has a credit balance of insubstantial value, a company can issue a debit memo to clear out the balance. If the balance is large enough to be considered material (i.e., a significant amount of money), the company would typically refund the customer rather than issue a debit memo.

Debit vs. Credit Memorandum: What’s the Difference?

Credit memos are essentially the opposite of debit memos. In banking, credit memos alert customers of an increase in their account balance. In business, a seller might issue a credit balance to alert the buyer that the original invoice was too high, thus reducing the amount the buyer owes.

Notification to Customers

When a bank issues a debit memo, it typically notifies the customer of the debit on the bank statement. Similarly, a credit memo will show up on a customer’s bank statement.

As a customer, you may receive paper or electronic statements. If you bank online, you can typically check your transactions at any time on the app or website. When you receive notification of a debit, you’ll want to take it into account when balancing your bank account.

Invoicing

As a seller issuing a debit memo, you are notifying the buyer that you are increasing the final invoice amount. A credit memo does the opposite: It notifies the buyer that you are reducing the final invoice amount.

Recording the Reduction

In the event of a debit memo, the seller will record an increase in the accounts receivable amount; the buyer must record the larger debit in their accounts payable ledger. For a credit memo, the seller records a decrease in the accounts receivable amount while the buyer records a smaller debit from accounts payable.

Debit: Remit Payment vs. Credit: Future Purchases

To clarify a bit more, debits are amounts owed that must be remitted to settle and account. Credits are money that an individual or business is owed, perhaps reflecting an overpayment, which may be applied to future purchases.

Here’s a summary:

Managing a Bank Account

When you open a checking account or savings account, it’s important to understand the fee structure so that you aren’t surprised by a debit memo on your monthly account statement. Ask for a fee structure upon opening a new account, and monitor your statements closely to understand what fees are being assessed.

As best as you can, check your checking account for low balances, and set up alerts for all transactions. It can also be wise to activate fraud alerts to help manage your banking security and protection.

The Takeaway

Debit memorandums alert banking customers that funds will be withdrawn from their account, often to cover fees incurred. This will lower an account balance, so it’s important to be aware of these changes and make sure your account doesn’t go into overdraft.

Looking for the right banking partner? See what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do you pay a debit memo?

A debit memo serves as a notification of a debit from your account. The bank will automatically debit your account. In a B2B scenario, a debit memo is a form or document that notifies the buyer that the seller has increased the accounts receivable amount.

Who issues a debit memo?

A bank or credit union may issue a debit memo to a personal or company account for specific fees, including bounced checks, insufficient funds, or printing checks. A business may issue a debit memo to another business to correct an invoice that results in underpayment. A business can also use a debit memorandum internally, to offset a credit balance in a customer account.

Is a debit memo the same as an invoice?

A debit memo is not the same as an invoice. Rather, businesses often issue debit memos as a correction to an initial invoice, typically when they have mistakenly undercharged a customer.

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