Both Credit Memo and Credit for Returns are technically same thing and the system doesn’t distinguish while processing these documents. It basically means that Customer has been charged over and these memos can be aligned with open invoices and cleared along with them. Once it is posted in the system, the payment processing happens automatically.
However, from the business perspective, there is a small difference.
Credit Memo – Red John Inc. charged Jane for 100 pairs of shoes but forgot to add a 3% discount they usually put in for non-profits working in Sacramento community. In this case, a credit memo for this 3% difference has to be posted. In the case for some reason, Jane overpaid due to a mistake by the teller, even then a Credit Memo is created.
Credit For Returns – Jane checked on the quality of 100 shoes provided by Red John Inc. He found that seven of them are defective and cannot be used. He decides to return them. Red John Inc. verifies the return and issues a Credits for Return.