When should you create a credit memo for a customer?

A credit memo should be created for a customer primarily when they return a product or service. This transaction effectively reduces the amount the customer owes and adjusts the company's revenue accordingly. When a product is returned, the company is acknowledging the return and formally documenting the decrease in sales. The credit memo serves as proof of the return and the subsequent adjustment, ensuring that both the customer and the business have a record of the transaction.

In the context of other options, while they may describe situations that involve adjustments or customer requests, they do not capture the primary purpose of a credit memo as effectively as the return of a product or service does. Creating a credit memo strictly due to overpayments or for routine record-keeping would not accurately reflect the specific adjustment prompted by a return. Additionally, only generating a credit memo upon customer request does not encompass situations where the company may need to initiate the process based on their return policy or other factors. The focus on returns makes the first choice the most relevant and accurate reason for creating a credit memo.